EPR Properties (EPR) Q2 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q2 2022 EPR Properties Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Craig Evans, Executive VP. Mr. Evans, please go ahead.

Thank you, Chris, and thanks, everyone, for joining us today for our second quarter 2022 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman 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 these 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 included with 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 the 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, which is www.eprkc.com. Now, I'll turn the call over to Greg Silvers.

Thank you, Craig. Good morning, everyone, and thank you for joining us on today's second quarter 2022 earnings call and webcast. During the quarter, we delivered meaningful growth in top line revenue and earnings, along with consistent collections in our scheduled deferrals. These results reflect the strong consumer demand for the experiences our tenants offer and the continuing resurgence of the experience economy. Since our last call, theater exhibition has continued to build strong momentum, anchored by the mega hit Top Gun: Maverick. Patience paid off handsomely for Paramount pictures as they delayed the title several times recognizing that theater exhibition was essential in maximizing revenues for the title. We are also pleased by the strong results produced from several titles and genres that appeal to a broader set of the population, demonstrating that additional age cohorts will return to the theater if relevant content is offered. We look forward to the remainder of 2022 as theater exhibition continues its positive momentum and regains its position as the dominant form of out-of-home entertainment. Additionally, many of our other experiential properties continue to perform at or above 2019 levels. While consumers are faced with uniquely high inflation, we have yet to see any material inflationary impact on attendance at our properties. And we believe we will continue to be well positioned as our properties offer the key attributes of lower price points and easily accessible locations across the U.S. and Canada. Turning to our investment spending, we are pleased to accelerate our pace of deployment into attractive investments with solid economics, utilizing our cash on hand. We acquired several unique and top-performing properties, which fit our regional experiential profile. These investments also demonstrate our ability to leverage our long-term commitment to experiential assets and deep relationships in the industries into quality investments. Our focus on continued growth and diversification is supported by the strength of our balance sheet and our cash flow generation. As our recovery continues, we're delivering sector-leading earnings growth, a well-covered monthly dividend and a strong long-term growth profile. Our in-place portfolio is delivering solid performance, while our strategy of identifying and executing on quality investments should deliver superior returns. By continuing to execute on this strategy, we believe we will create meaningful shareholder value, which is not currently reflected in our share price. Finally, we are pleased to announce that we are raising guidance for our 2022 FFO as adjusted per share. This reflects our increased earnings power and strong recovery of our tenants. Now I'll turn the call over to Greg Zimmerman to talk more about our portfolio.

Thanks, Greg. At the end of the second quarter, our total investments were approximately $6.6 billion with 358 properties in service and 97% leased. During the quarter, our investment spending was $214.9 million. 100% of the spending was on our experiential portfolio and included 3 acquisitions, build-to-suit development and redevelopment projects. Our experiential portfolio comprises 284 properties with 47 operators and accounts for 91% of our total investments, or approximately $6 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. While broadly there is increasing uncertainty and concern around inflation and the possibility of a recession, historically, our value-oriented drive-to destinations have proven to be more resilient in times of recession because they provide a compelling value proposition for families. To date, we have not seen meaningful impact from inflation or gas prices, and our expectation is that this will be the case in the event of an economic slowdown. Now I'll update you on the operating status of our tenants. Q2 total box office was $2.3 billion. Total North American box office for the first half of the year was $3.7 billion. Our high-quality theater portfolio continues to outperform the industry. Second quarter box office was boosted by 4 blockbusters: Top Gun: Maverick; Doctor Strange and the Multiverse of Madness; Jurassic World Dominion; and Sonic the Hedgehog 2. At $650 million in box office, Top Gun is now the highest -- ninth highest grossing North American film of all time. Year-to-date, 12 films have exceeded $100 million in North American box office. And during Q2, 12 films grossed over $40 million in box office, demonstrating a broad return to theaters by consumers. At $1.132 billion, July was the highest grossing month since December 2019, led by Minions: The Rise of Gru; Thor: Love and Thunder; Top Gun; Elvis; and Nope. Three quick data points. Minions: The Rise of Gru, has grossed more than $320 million to date, which shows families with young children still want to see films in the theater. We are encouraged by the performance of Elvis, a traditional biopic with no branded IP, which is reaching multiple generations and has grossed $129 million to date. In each week of July, 4 to 5 titles grossed $10 million per weekend versus only 1 to 3 during the first half of the year, which again demonstrates the broadening recovery. August and September results will be muted with few releases anticipated to generate $100 million. However, Q4 is anchored by 4 major releases: Avatar: The Way of Water; Black Adam with Dwayne Johnson; Shazam!; and the Marvel Universe film, Black Panther: Wakanda Forever. The consumer is returning to the theater. The results demonstrate that all ages of moviegoers still want to see good films on the big screen. As mentioned on our last call and discussed in multiple media reports over the past several months, we don't have a demand issue, we have a content supply issue. Box office numbers will continue to improve as studios increase the number of films flowing to theatrical release. Turning now to an update on our other major customer groups. I would like to point out that in the Q2 supplemental, we moved 3 properties from Experiential Lodging to the category which best categorizes their key demand driver. Because they are both anchored by indoor water parks, we moved Camelback Indoor Waterpark hotel and the Kartrite Resort & Indoor Water Park to Attractions. We moved the Springs Resort in Pagosa Springs, anchored by natural hot springs to fitness and wellness. The recently acquired Villages Vacances Valcartier is reported in Attractions. We continue to see positive trends across all segments of our drive-thru, value-oriented destinations. In Q2, we saw continued good performance across Eat & Play throughout the country with portfolio-wide double-digit year-over-year revenue growth. We are particularly pleased with the performance of our latest top golf locations. As attractions began to reopen for the summer season, we saw revenue growth and performance generally at or above 2021 levels. We are seeing significant year-over-year growth in attendance and revenue at our cultural properties. The attendance and revenue performance at the Springs Resort in Pagosa Springs remained strong. And as a result, we are working on an expansion. Revenues are nearly at pre-pandemic levels at our fitness assets. Q2 begins the ski off-season. As previously mentioned, several of our properties are undergoing capital improvements. Alyeska Resort, the premier Four Season Resort in Alaska, has 76 named ski trails, mountain biking and hiking trails, the Nordic Spa, the Alyeska aerial tram and the award-winning Seven Glaciers restaurant at Top Mount Alyeska. It's benefiting from strong summer travel demand in Alaska. And after the close of the quarter, we closed on an additional $25 million in financing for Alyeska. Revenue growth continues across our experiential lodging portfolio with strong growth in ADR. We are pleased with the performance of our RV resorts. Our Education portfolio continues to perform well with year-over-year increases in revenue, EBITDAre and attendance across the portfolio. Attendance improved 15% in private schools and 19% in early childhood education. Turning to a quick update on capital recycling. We have executed contracts of sale for 4 of our 5 vacant theaters, which we expect to close in either 2022 or 2023. We are discussing the fifth with multiple parties. During the quarter, we announced the acquisition of 2 well-known assets in Canada for $142 million: Villages Vacances Valcartier in Quebec City, Quebec; and the Calypso Waterpark in Ottawa, Ontario. Valcartier an iconic 4-season attraction destination and resort covering 225 acres and offering indoor and outdoor water parks and winter attractions, such as tubing and sledding, over 600 camp ground sites and a variety of food and beverage options. The resort includes the Hotel Valcartier, a 4-star modern hotel with 163 rooms, and the internationally renowned Hotel de Glace ice hotel. Calypso Waterpark is the largest themed water park in Canada, covering 350 acres with 35 water slides, 2 lazy rivers and the largest wave pool in Canada. As noted on the last call, during the second quarter, we also acquired our third RV resort, the Cajun 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 owns 85% and our gross investment exceeds $60 million. The joint venture that holds this property assumed third-party debt of $38.5 million that matures in 2034 and is attractively priced at a blended rate of just over 4%. We're making substantial progress on our investment pipeline. To date in 2022, we have funded $268.3 million for acquisitions, refinancing and new development projects in Attractions, Ski, Eat & Play, Health and Wellness and Experiential Lodging. We expect to fund an additional approximately $24.8 million on announced projects during the balance of 2022. Cap rates are around 8% and should create compelling long-term value. We're maintaining our 2022 investment spending guidance range of $500 million to $700 million. We feel good about our 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 continue to take advantage of these growth opportunities. Finally, with the continued recovery in the performance of our properties, we will provide coverage metrics on next quarter's earnings call. 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 $1.17 per share versus $0.68 in the prior year, and AFFO for the quarter was $1.23 per share compared to $0.71 in the prior year. Now moving to the key variances. Total revenue for the quarter was $160.4 million versus $125.4 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 the effect of acquisitions and developments completed over the past year also contributed to the increase. This increase was partially offset by the impact of property dispositions. We are very pleased to report that all deferred rent and interest continues to be collected as scheduled. During the quarter, we collected $4.9 million of deferred rent from accrual basis tenants and borrowers that reduced receivables, leaving a balance on our books at June 30 of $12.1 million. We expect to collect approximately $10 million of this remaining balance over the back half of 2022. Additionally during the quarter, we collected $4.7 million of deferred rent and $0.3 million of deferred interest from cash basis customers that were recognized as revenue when received and which were not included in our guidance. At June 30, we had approximately $119 million of deferred rent owed to us not on the books. This remaining balance is due over the next 5 years. Revenue from these customers will continue to be recognized when the cash is received. I will provide more on the expected cash basis deferral collections for the remainder of the year later in my comments. It is notable that through June 30, we have collected over $100 million of rent and interest from customers that was deferred as a result of the impact of the COVID-19 pandemic. [indiscernible] that we forgave very little rent or interest during the pandemic, but instead worked diligently with our customer to design repayment plans that worked for their businesses. We are now seeing the fruits of that work as our customers have experienced a strong recovery and are paying back their deferrals in addition to all of their current amounts due. Moving on, we had higher other income and other expense of $8.9 million and $5.8 million, respectively, mostly due to the performance of the Kartrite Resort and Indoor Waterpark which was closed for a portion of the second quarter in 2021 due to COVID-19 restrictions, as well as from 2 theater properties that we operate. Mortgage and other financing income was $7.6 million for the quarter versus $8.4 million in the prior year. The decrease was due to write-offs of $1.5 million of accrued interest receivables and mortgage fees primarily related to our only investment with one Eat & Play borrower. Additionally, during the quarter, we recognized $9.5 million in credit loss expense primarily related to the same Eat & Play borrower. Note that credit loss expense is excluded from FFO as adjusted. The decrease in mortgage and financing income was offset by $0.3 million in deferral collections from a cash basis borrower and other smaller items. Percentage rents for the quarter totaled $519,000 versus $2 million in the prior year. The decrease versus prior year related to less percentage rent from an early education tenant based on a restructured lease, which has higher base rents in 2022. This was partially offset by higher percentage rents from 1 ski property. The $519,000 of percentage rents recognized for the quarter was less than the $1 million we had anticipated primarily due to an increase in a tenant's revenue threshold upon which percentage rent is calculated. This threshold is dependent on CPI and the magnitude of the increase was not anticipated in our plan. This issue impacts a couple of other properties as well, and I'll have more on its impact on our percentage rents for the year when I discuss our revised guidance. Finally, equity and income from joint ventures totaled $1.4 million versus -- for the quarter compared to a loss of $1.2 million in the prior year. This is due primarily to increased revenues at 2 Experiential Lodging properties in St. Pete Beach, Florida that are performing well in addition to income from our new investment in the Cajun Palms RV Resort in Louisiana. In addition, due to the recent renovations completed and the performance at the St. Pete Beach properties, during the quarter, we were able to refinance the nonrecourse secured debt at these joint ventures based on a significantly higher valuation, increasing the debt amount from $86 million to $105 million and lowering the interest rate. We received $6.7 million in proceeds as a result of this refinancing after reserve fees and cash left in the joint ventures. I'd like to take a moment to point out a couple of other items in our supplemental. First, due to our increased investment in joint ventures, we added a summary of unconsolidated joint ventures on Page 18, which includes our carrying values, earnings and debt terms. Second, due to our customers' recovery from the impact of COVID-19 this quarter, we have begun presenting our portfolio detail by annualized adjusted EBITDAre versus contractual cash revenue. This allows us to include managed properties and joint ventures and is a better method for allocation than using contractual cash revenue that had made sense to use when we were impacted by the pandemic. You will see this change on Page 21 of the supplemental, including the reclassification of certain properties that Greg discussed. Note that the allocation percentage shown for Eat & Play is impacted the most by this change due to picking up the property operating expenses at our entertainment districts versus previously showing it by contractual cash revenue, which included CAM reimbursements with no expense offset. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be strong with fixed charge coverage at 3.3x, and both interest and debt service coverage ratios at 3.8x. Our net debt to adjusted EBITDAre was 5.1x and our net debt to gross assets was 39% on a book basis at June 30. Lastly, our common dividend continues to be very well covered with an AFFO payout ratio for the second quarter of 67%. Now let's move to our balance sheet and capital markets activities. At quarter end, we had consolidated 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 consolidated debt maturity is almost 6 years with no scheduled debt maturities until 2024. We had over $168 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. Furthermore, we expect to generate over $150 million of operating cash flow after payment of dividends in 2022. 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 $4.50 to $4.60 from a range of $4.39 to $4.55. We are confirming our guidance on investment spending of $500 million to $700 million and disposition proceeds of $0 to $10 million. Before concluding, I would like to give some additional details regarding 2022 guidance. The increase in the midpoint of our FFO as adjusted per share guidance of $0.08 from $4.47 to $4.55 is due to $0.07 of deferral collections from cash basis customers during the second quarter and $0.05 of other favorable items, including improved performance expectations at our managed properties. This is partially offset by a reduction in percentage rent guidance of $0.04 at the midpoint, primarily due to an increase in revenue thresholds for certain customers that are dependent on CPI increases, as I mentioned earlier. Also, we continue to expect percentage rent to be weighted to the fourth quarter, with third quarter expected to be consistent with second quarter levels. We are continuing to exclude any future collections of rent deferrals from cash-basis customers in our guidance given the uncertainty of collections. Such amounts we booked as additional revenue, to the extent received over the last 6 months of 2022 and could represent as much as approximately $6 million or about $0.08 per share of earnings for each of the third and fourth quarters. Guidance details can be found on Page 24 of our supplemental. Lastly, I'd like to comment on our capital plan for 2022. We continue to be in the enviable position in this turbulent market with low leverage over $168 million of cash on hand at quarter end, nothing drawn on our $1 billion line of credit, no scheduled debt maturities in 2024 and expected operating cash flow after dividend payments of over $150 million for 2022. This means we can be opportunistic as to when and how we access additional capital, depending on our level of investment spending. Now with that, I'll turn it back over to Greg for his closing remarks.

Thank you, Mark. In closing, as you've heard today, our portfolio continues to strengthen. Our investments are ramping and our balance sheet is well positioned to fund this growth. We believe this unique combination will continue to drive earnings outperformance and create shareholder value. With that, why don't I open it up for questions. Operator?

[Operator Instructions]. Our first question comes from Anthony Paolone of JPMorgan.

My first question relates to the investment pipeline, and you talked about, I think, about an 8% yield that you're seeing out there. I was wondering if you could talk a bit more about what is particularly attractive to you right now, where you're seeing the most deal flow and how that 8% flexes up or down based on different types of products.

Sure. And I'll let Greg jump in on this after. But Tony, I would say it's pretty much across the board. I think we're seeing good opportunities. I think Greg can tell me if he agrees. I think our deal pipeline is as robust as it's ever been. I think where you see some flexes is whether it's a development, redevelopment versus an acquisition. I would tell people, and this is -- I think you've heard this from other people, it is taking longer to get deals closed just because of third parties, whether that's lawyers or inspections or title companies. So I think they're struggling with staffing like everyone else. But I think we're excited about not only the debt but the breadth of what we're seeing. But Greg, maybe you want to add something to that.

Yes. Tony, I would agree with what Greg said. I think that the dislocation in the debt markets is helping us a bit. And absolutely, when we're looking at a development project, we're expecting a higher yield. We're seeing strength across virtually all of our verticals and have multiple deals and discussion in virtually all of the verticals. And obviously, we're not, as we've said many times, looking to increase any theater exposure.

Okay, got it. And then any changes to the contractual bump structures that you're getting in leases these days? And also, can you remind me if you have any sort of uncapped CPI in the portfolio at this point?

We really don't have uncapped -- we're -- there's no doubt we're pushing on where those caps -- those caps used to live somewhere in the -- call it, 1.75% to 2%. Now we're pushing those, try to push those to 2.5% to 3%. I mean we're also mindful of the idea of uncapped CPI exposure can put great pressure on your tenants. So we've not had a tenant who's not pushing back on the uncapped aspect of that. But we are pushing the boundaries on that. But Greg, maybe you have more to add.

No, I think that's right. And certainly, every lease is a discussion. Tenants certainly understand that inflation is an issue. So we're getting better increasing the caps, as Greg said, but not uncapped.

Our next question shall come from Nicholas Joseph of Citi.

You talked about the 4 of the 5 vacant theaters under contract. What's the broader market for occupied theaters today, especially if the box offices has bounced back a bit in the second quarter?

I still think -- and again, I'll let Greg jump in this. I think what you're seeing is there is a market for underperforming or non-occupied theaters. Most of our non-occupied are for alternative use. I don't think there's a lot of people trying to sell good theaters. We haven't seen a lot of that in the market yet. I think as we work through this year, we've said consistently, we think that market will continue to improve, and you'll start to see some movement in there in 2023 as everybody readjust and sees that this industry is going to be okay. But candidly, we're not seeing a lot -- what I would call good theaters change hands. But Greg, maybe you have better color on that.

Yes, I completely agree. I mean, occasionally, we'll get a teaser for what we would consider a lower quality theater. But they're few and far between, Nick.

Thanks, that's helpful. And then just on the credit loss write-off, what was unique about that tenant versus the performance you're seeing really across the rest of your Eat & Play portfolio?

Again, what we had was mainly a one Eat & Play that was kind of a Grubhub kind of operation that we had a real leadership issue change and shake up. And it really is idiosyncratic to anything else we're seeing. This is not a space that we have -- this was the only asset like that we had. And then it was a unique kind of leadership, kind of turmoil that effectively, to a large degree, shut the business down. So we haven't invested more in that area, and we don't plan to, Nick.

Our next question shall come from Todd Thomas of KeyBanc Capital Markets.

Just a couple questions around the guidance. Mark, a lot of helpful detail around the quarter and the outlook. But a question for you, outside of the $0.07 related to the out-of-period collections, from cash basis tenants, are there any additional nonrecurring items or run rate adjustments that we should think about moving from 2Q to 3Q, anything that impacted FFO as adjusted in the quarter?

I mean not really. We excluded the credit loss. The -- we don't expect the bad debt write-off to continue so that mortgage financing income should move back to historical levels. plus any new investments that we have and the impact on that line item. But no, I think largely, the increase in guidance is the $0.07. We've had better performance at our managed properties, both Kartrite and theaters, but also and particularly at the unconsolidated JVs, which is really helping. And that's really offsetting like we show on that schedule, the decrease in percentage rents due to the threshold issue that I mentioned.

Okay, that's helpful. And so the $0.07, that's $0.06 in rental revenue and then $0.01 in mortgage and other financing income. Is that where those adjustments will take place?

Yes. It's -- yes, it's not quite $0.01, and it's a little higher than rent, but total it's $0.07 and you're right, most of it is in rent.

Got it, okay. And then in terms of investments, I guess, it sounds like you're seeing a lot more product come to market and the pipeline is fairly healthy here. As we think ahead, and I realize you're not providing '23 guidance, but investment spending is forecast to ramp up here in the back half of the year a little bit. Would you expect to see that level of spend continue into '23 as you look ahead?

Again, Todd, you said it correctly. We're not going to give guidance now. I will stick with what I said earlier. Our pipeline is very robust. And as Greg said, I think there's a lot of capital constraints in the market right now with people, whether it be on the debt side or they don't like their cost of equity. We really think deals that had potentially moved away from us are coming back. So we're seeing good opportunities. And I think, as Mark talked about, our balance sheet has positioned us to kind of take advantage of some of this. So I think we like where we're positioned. And as we have announced, there's development and redevelopment projects that are going to carry into 2023 already on the books. So we're getting back into that rhythm of what you saw kind of pre-pandemic where we start projects, and we begin the year with a significant amount of carryover. But all I can say is we like kind of where we're positioned right now and stay tuned to next for what we do next year.

Okay. That's helpful. And just last question, Greg, for you. I think in your prepared remarks, you commented that you've yet to see any material changes to performance at the company's properties related to inflation that consumers are facing. Are there any categories or segments of the portfolio where you're seeing some impact? And where would you expect to see the greatest sensitivity moving ahead if there was going to be some potential moderation in performance or traffic?

I think I'll let Greg comment on this as well. I think the first kind of canary we would see in the coal mine would probably be in our Experiential Lodging properties because those are -- you've got ADRs and you're starting to -- where you would see pricing power almost on a daily basis as some of the demand starts to erode or we're seeing. We haven't seen it yet, but I think we would start to see it in some of that. I think in some of the Attractions properties, candidly, the season is almost over, move to a season. So my guess is there. The next thing we'll be looking out for as we move into the winter months is kind of the ski properties and seeing if we're seeing any impact there. But we monitor it across kind of all of our portfolio. I think what I've seen -- what we've seen in previous recessions, and I'm not saying all recessions are the same, but in previous is some food and beverage reductions, like people still going to the movies but not spending as much on concessions or at some of our Eat & Play still going, but the size of the check on the F&B goes down. So those are the areas that we'll definitely be monitoring, Todd.

Our next question shall come from Rob Stevenson of Janney Montgomery.

One for Greg, how much of the investment spending in the second half is likely to be development or redevelopment where the earnings impact is an immediate versus straight acquisitions?

I'll let Greg, but I think we're going to be looking at kind of a nice combination of both. Again, as Mark indicates, we've got really, really good earnings growth and being able to identify the right projects, which we think drive the highest kind of reward for the risk. Well but I would say there is a substantial amount of development and redevelopment in there. But Greg, maybe...

I think that's well put, Craig. Yes, I don't have anything to add.

Okay. Because I'm just trying to figure out how much is in the earnings impact for the back half of the year versus whatever you want to call it, an earn-in for '23 where they really don't start producing much revenue until then, and the earnings impact is more '23-oriented than back half of '22. So just trying to figure.

Let me comment. Obviously, the build-to-suit really, you're just kind of having capitalized interest, so not a whole lot of earnings impact this year, more next year when it comes online. With respect to acquisitions, I would tell you we've been conservative in how we've laid that into the back half, such that the further you put it particularly to fourth quarter, you're not having as much impact this year as you will, next year. So we've been fairly conservative as we thought about the timing of acquisitions.

Okay. And then a couple of other things for you, Mark. I mean the Eat & Play credit loss, is that just a write-off? Or is there a path to recovery or a control of an asset or anything there? Or is it just a straight write-off at this point?

Well, they continue to owe us the amounts. But frankly, if we thought we were going to recover it, we probably wouldn't have written it off. So I think with respect to the write-off, the $1.5 million, we probably will not recover that, although we'll continue to pursue it. And then with respect to the credit loss, that's just a matter of going out and getting it appraised at the collateral value and booking it to that number.

Okay. And then lastly for me. On the guidance, did I hear you correctly that there was -- that you don't have any of the deferred rent that you haven't collected in through the first 6 months in the guidance for the back half of the year, so that's all upside?

No. The first 6 months of the year is because to the extent -- once we receive, we count it, so the $0.016 in Q1, the $0.07 in Q2, that's in our guidance. The forward number, which could be as much as $0.08 per quarter is not in our guidance. And again, there's more risk associated with that, and we do not guide to that.

Okay. And then how much have you collected in July? Was that anything material? Or is that essentially 1/3 of the $6 million? Is that about $2 million a month?

Again, we're not giving guidance on that, and we're probably not going to talk about a forward quarter at this point.

Our next question comes from Joshua Dennerlein of Bank of America.

I guess you mentioned, the Education portfolio in your opening remarks. I guess, maybe stepping back strategically, how are you thinking about that? Curious to kind of your latest thoughts on how that fits into your strategy going forward?

Sure, Josh. And we've talked about before, we kind of look at that as it's a performing asset. It's doing well, as Greg mentioned in his comments. We don't -- as we've talked about and Mark talked about, we don't need capital. It could be a source of capital and we could -- as we said, it doesn't fit into our long-term strategy. Those are assets that are owned by a lot of net lease kind of competitors. So if we go into next year and we don't like our cost of capital or we think that we can achieve better returns by recycling that, we see that as an opportunity. But given the fact right now that it's performing and we're long relative to our capital needs, we don't see any need to necessarily sell those assets now. But it is an opportunity for us to, again, kind of recycle capital as we move through this recovery.

Okay, great. And then the bad debt expense, that $1.5 million. Is there anything else in guidance as far as bad debt for the rest of the year?

Well, you noticed that's not in my reconciliation of our guidance for the year. That's because we budget a certain amount of bad debts, and this certainly fit within what we budget for a year. So it didn't really affect us because we do budget some reserves for bad debt.

Okay. Did that utilize everything in your budget? Or is there a little bit more reserves?

We have more reserves than that.

Our next question shall come from Michael Carroll of RBC Capital Markets.

Greg, you highlighted in your prepared remarks that the studios need to produce more content to help the box office to further recover. I know the release schedule looks a little light if you look into the second half of this year. Are you starting to see studios reinvest into theatrical content to improve those schedules in '23, '24? I mean what's the outlook there?

Yes. I mean we've seen some of the studios start. If you look at Warner, Warner has said they're taking up their number of films. So we're starting to see that. And as Greg highlighted, it's really not kind of the blockbuster films, it's the filler films, the kind of $25 million to $50 million budget films, which just candidly didn't get made during the pandemic. It's going to take a little bit of time. Again, there's still a lot of belief that there's other opportunities to fill that as people see audiences kind of come back across multiple age groups, as we talked about. But we're starting to see the studios recognize that and respond and talk about, kind of making more and different films. So it's -- we're encouraged by what we've seen so far.

Okay. And then related to the -- how interest rates are impacting, I guess, transaction values. I know that you highlighted that you're starting to see development yields tick higher. Are you seeing acquisition yields also tick higher? How is that being impacted?

Yes, I think it is. I think we're seeing it across the board. I think we always have demanded a higher yield for development or redevelopment. But I think across the board, I think in our size deals, probably the major driver of that is the cost of debt or the absence of debt for certain private groups to be active bidders. And so accordingly, with that movement, I think what's really interesting, and I'll ask Greg to comment is probably in the last quarter, we've seen the idea of a lot of tenants and operators who've kind of capitulated that, yes, costs are really staying higher. And they were holding out thinking like we started kind of many times at the beginning of the year and saying, okay, this is the year that rates are going to go higher and then they don't. So I think the first half of the year where people kind of continuing to fight that trend. And now it's kind of like if you want to grow the business, this is just the cost of doing it and people are getting more comfortable with that. But Greg, maybe you have more color on that.

Yes, I think it's been about 6 months of conversations starting with the cap rates that have been compressed and people starting to have price discovery, and coming back and talking to us. So yes, I think in general, we're seeing cap rate expansion across all of these verticals.

If you listen to the prepared comments, beginning of the year, we probably would have said 7% to 8%. We're saying -- thing around 8%. So that kind of tells you what we're seeing.

Okay. So you're roughly 50 basis points higher, you're seeing cap rates broadly increase for developments and acquisitions?

Yes, probably. I think that's a fair -- everything is a little -- that implies a level of precision that each deal is dependent on, but that's probably a good mark.

Okay. And then just last for me, Mark, can you provide an update on the operating trends of the assets in the TRS? I know that you kind of highlighted that you're seeing some really good trends within the lodging segment. It looks like what, these properties generated about $1 million in the second quarter. What would we -- should we expect as you move into the second half of this year and into 2023?

Well, when you're looking at the equity pickup, that has depreciation at FFO is about $3.4 million this quarter, if you look at our FFO from JV. So now I will say that trend-wise, we're doing very well. Second and third quarter are the high marks, the prime season for our JV. So you're going to see higher earnings in Q2 and Q3, lower earnings in Q1 and Q4. But we're, in general, very pleased with the JVs that we're seeing. If we -- if you look at it, we got about $47 million of carrying value. Our FFO for the year probably somewhere in the 6% to 9% range. That implies kind of mid- to upper double-digit return on equity. So they're doing very well. We're getting -- if you think about the St. Petersburg properties, our ADRs is as high as they've ever been. And the JVs are doing -- sorry, the RV parks are doing well in addition. So really good performance, some seasonality to it, but some nice returns that we're getting on a levered basis.

Okay. And can you remind us what the long-term plan are for those properties? Do you plan on keeping them in the TRS? Or do you -- are eventually going to sell them to a tenant, put them in a triple net structure?

I think part of the issue is almost every one of these we've kind of redeveloped and so we've materially improved. We will see -- again, part of it's going to be about looking at that as -- as Mark said, we're achieving kind of mid-level 15%, 16% returns going to a net lease, where will that land out and where do we think relative value is going to be on choosing structure over yield. But we're never going to have a huge portion of our portfolio exposed to this. But we think this is a really nice feature, especially in an inflationary environment to be able to capture some of that upside.

And Greg, I would say just to echo the 2 RV parks and the 2 hotels, we've improved or are in the middle of improving all of them substantially with development dollars.

Next question is from John Massocca of Ladenburg Thalmann.

Just a quick question on the cash deferral collection. Is that expected to be pretty evenly weighted between 3Q and 4Q? And then I guess as we look into 2023, does the kind of collection schedule change remarkably at all?

Yes. So I think Q3 and Q4, I mentioned should be similar type levels in terms of rent -- deferred rent collections. So for the total of the year, that implies something close to $19 million for '22 when you add in what happened in Q1 and Q2. As you move to '23, because some of the larger tenants start paying in -- started paying in Q2, that's going to annualize in '23. So that '23 number is closer to $27 million. It's going to go up in '23, just per schedule. Part of that, one tenant is based on EBITDAre. So it's a little bit difficult to predict. So there's an EBITDAre prediction there, but the rest are scheduled. So it's $27 million in '23, close to $27 million roughly in '24, $26 million in '25 and then it starts to kind of come down as you go to '26 and '27. But it should stay at that high -- mid-20s number for the next 3 years. Now keep in mind that if we go to accrual anytime during that time, we'll have a big onetime increase and it won't be in earnings in the future. So it kind of depends on the timing of going to accrual basis. And as we've always said, there's more risk associated with these deferrals. If we ever were to say, hey, if we could get it all at once or upfront, would we take a discount and so forth. So those are the numbers, but I'll just caveat those a bit in terms of what they mean to the future earnings.

That's very helpful. And then in terms of percentage rent, and I think obviously for the remainder of the year, it's pretty clear from your guidance. But if we do see CPI moderate at all in the back half of this year or in 2023, I mean, how does that impact the percentage rent outlook? Broadly speaking, that we're not looking for exact numbers.

Yes. Really, we just have 2 tenants, 1 with a few properties, 1 with one property that are impacted by this. Most of our percentage rents outside of these 2 tenants aren't CPI dependent. The threshold goes up as the rent bump goes up. So we had the unusual case in this particular case with these 2 tenants where particularly one, which was it goes up by the higher of X percent or CPI. And with CPI running higher, it did have an impact. Now we only booked $500,000 a percentage rent during the quarter, mostly due to this 1 tenant. So it's not going to have a huge impact to the extent CPI were to increase beyond current levels with respect to that tenant. The other tenant that affected, like I said, a few properties had a kind of a 5-year bump. That is also dependent on CPI, but it was capped. It was larger than we planned, but it is capped. It's not is not CPI, it just runs with CPI. So they really -- we had the 1 uncapped one. The other 1 was higher than expected, but is capped. So I don't -- long and short, I don't expect a tremendous impact on percentage rents going forward from the levels this year, which is at midpoint $8 million as a result of CPI further going up.

Okay. And then I guess just for the CPI -- sorry, the percentage rent outlook for this year. Was any of that because of maybe weaker-than-expected operating performance from some percentage tenants or the dollar just related to some of these calculation related adjustments?

Yes. I'll say it was really primarily a threshold issue. I think we had -- we sort of budgeted the 1 tenant this quarter based on '19 levels. They were slightly below. So there was a bit of a volume issue. But I think the threshold issue was the primary driver.

Thank you. This will conclude the Q&A portion of the conference. I would now like to turn the conference back to Greg Silvers for closing remarks.

Thank you, everyone. We appreciate your time and attention. Look forward to talking to you next quarter. Have a great day. Thanks.

This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.