Good day, and thank you for standing by. Welcome to the Quarter 4 EPR Properties Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brian Moriarty. Please go ahead.

Thank you, Chris. Thanks for joining us today for our fourth quarter and year-end 2022 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO; and Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. We'll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from those forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call will contain references to 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 available on the Investor Center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers.

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's fourth quarter and year-end 2022 earnings call and webcast. For the full year, we delivered 52% per share growth in FFO as adjusted, demonstrating our continuing recovery and the resilience of our experiential investments. This resilience is also reflected in our improving theater rent coverage levels and the continued strength of our non-theater rent coverage. Even against the backdrop of recession fears, the consumer continues to support our affordable drive to experiential properties. We are also pleased that in the fourth quarter and through February 2023, we have received all scheduled rent and deferral payments from Regal as we are working through the process toward a resolution. Our tenant industries continue to demonstrate healthy momentum. This is particularly evident at the box office, which was up by more than 64% in 2022. Sustained wide release content continues to be the key ingredient for success as the number of wide release films have grown, ticket cells have grown and major studios have reasserted their focus on theatrical releases. During the year, we also resumed our investment spending, deploying capital in a disciplined manner across a variety of experiential properties. After pausing our investment spending for nearly 2 years during the pandemic, our efforts in 2022 validate our ability to identify, underwrite and close quality transactions in the experiential space. For the year, we closed transactions valued at over $600 million with over $400 million being deployed in 2022 and the balance being deployed in 2023 and 2024. We are able to fund these commitments without raising additional capital and the average cap rate on these investments was over 8%. As we've stated in the past, the vast majority of our investments come through our network of tenants…

Thanks, Greg. At year-end, our total investments were approximately $6.7 billion, with 363 properties in service and 97% leased. During the quarter, our investment spending was $81.2 million, bringing the total investment spending for 2022 to $402.5 million. 100% of the spending was in our experiential portfolio, and included the acquisition of a project for redevelopment and additional financing for an existing asset. Our experiential portfolio comprises 289 properties, with 49 operators and accounts for 92% of our total investments or approximately $6.2 billion, and at the end of the quarter was 97% occupied. Our education portfolio comprises 74 properties with 8 operators, and at the end of the quarter, was 100% occupied. Our value-oriented drive-to destinations provide a compelling value proposition for families. To date, we have not seen meaningful impact on our operators from inflation, and we remain confident they will continue to prove resilient. Turning to coverage. The most recent data provided is based on a September trailing 12-month period. Overall portfolio coverage for the trailing 12 months continues to be strong at 2x. Trailing 12-month coverage for theaters is 1.4x with box office at $7.7 billion for the same period. Trailing 12-month coverage for the non-theater portion of our portfolio is 2.7x. Now I'll update you on the operating status of our tenants. Q4 total box office was $1.8 billion. Total North American box office for 2022 was $7.4 billion compared to $4.5 billion in 2021. Our high-quality theater portfolio continues to outperform the industry. When strong pictures are available theatrically, the public is responding very favorably and the results prove it out. Three films released after the pandemic are among the top 9 highest grossing North American box office films of all time. Spider-Man No Way Home is #3 at $814 million. Top Gun Maverick…

Thank you, Greg. Today, I will discuss our strong financial performance for the quarter and provide an update on our balance sheet. FFOs adjusted for the quarter was $1.25 versus $1.08 in the prior year, and AFFO for the quarter was $1.27 per share compared to $1.11 in the prior year. Before getting into the details, at a high level, our results for the quarter significantly exceeded the midpoint of our guidance due to the following: first, additional rent and deferral collections from Regal; second, additional deferral collections from non-Regal customers; third, additional percentage rent received; and fourth, better performance at our JVs and managed properties. Now moving to the key variances by line item. Total revenue for the quarter was $178.7 million versus $154.9 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. With respect to Regal, we received all monthly rent and deferral payments for October through December as well as a portion of the September monthly rent and deferral payment. Both the December deferral payment of approximately $1.5 million and the partial September payment of approximately $0.8 million were not included in the midpoint of prior guidance as we had not yet received these amounts by the time of our last call. Also contributing to the increase for the quarter versus prior year with scheduled rent increases as well as the effect of acquisitions and developments completed over the past year, this increase was partially offset by the impact of property dispositions. During the fourth quarter, we also collected all deferred rent and interest due from non-Regal customers. Recall that we did not include approximately $0.5 million in the midpoint of our prior guidance…

Thank you, Mark. Outstanding growth in FFO, strong investments in pipeline and continuing consumer resilience were just a few of the key themes of our call today. And I wanted to take a moment and acknowledge and thank our entire team of associates that work so hard to produce these results. We take pride in driving value for our shareholders, and we look forward to continuing our progress in 2023. With that, Chris, why don't we open it up for questions?

[Operator Instructions] Our first question comes from the line of Joshua Dennerlein with BofA Securities.

Yes. I guess I was just looking for a little bit more color on -- in the press release, you mentioned Regal initially, I guess, filed a motion to reject 3 leases for -- or reject leases for 3 properties and then decided not to proceed with those. Is there any kind of additional color you can provide on that? And --

Yes. Josh, it's Greg. I wouldn't read in very much into that. I mean it's a very fluid situation. If you look at the way the bankruptcy process, there's been properties moved in and out of motions. So I think it's -- like I said, I don't know that that's reading into that is positive or negative. It's just a lot of tactics that go on with that. But Greg, maybe you want to add more to that?

No. I think that summarizes it.

Got it. And then maybe 1 more on Regal. I guess if you were to get assets back, I guess, how are you thinking about what you would do with those assets? Is it your preference to kind of sell them, redevelop the properties or just continue operating them as theaters with a different operator?

Again, it's probably 1 of very property specific. If there are opportunities, whatever kind of drives value, the best value. So we'll explore all of that. We've talked openly about the fact that we've created optionality that if we want to have these properties managed that Greg and his team have created that optionality for us. I'm sure, depending upon where the property is located and its alternative uses, we would explore sale. So until we get a good sense of not only specific properties, but how many it's really hard to comment on the variety of kind of alternatives we would pursue. But Greg?

Josh, I think coming out of the pandemic, we executed on all 3 strategies. We released some theaters. We sold some theaters. And then, as Greg mentioned, we managed 2 theaters. So we have all those options available in this case as well.

This question comes from Rob Stevenson of Janney Montgomery Scott.

Just a follow-up on the last question, Greg. Outside of AMC and Regal, how would you characterize the health and the expansion plans over the next couple of years of the smaller regional operators? Are they going to be in a position to be the retenant on whatever legal or whoever gives back over the next few years? Or do they have their own problems and they're going to -- the vast majority of these theaters are going to have to be redeveloped as something else?

Again, and I'll let Greg jump in. But I think the health generally of the nonpublic tenants were substantially helped by government assistance as we saw coming into and out of the program. So I think, again, as we've always said, good theaters will find a home, and they will have people who are very interested in either operating or leasing those I don't think it's going to be for a lack of opportunities that we have. I think what's good for the industry is I don't think you're going to see a lot of new ground-up growth. So really, what we're talking about is people will be looking for opportunities that can be very quickly taken over and brought back into production relative. But Greg?

Yes, I think that's accurate. And Rob, also I would say our theater coverage is 1.4x. And we do have within that coverage a number of regional theaters that continue to perform fine and well.

Okay. And then just turning to the education side. What is the market these days for decently leased education assets? Is there -- the cap rates, if you wanted to sell more of that portfolio than just the 5 that you're getting back from KinderCare, is that available to you at a reasonable pricing? Is that pricing not really there yet today and it's better to hold these? I know that the education has been reduced for you guys for a while. But how does that timeframe work? And what are you guys thinking about there?

Yes. I think it's the approach. And again, I'll let Greg Zimmerman contact. I think the market is still rather good if you're wanting to sell one-off assets. This is a market that still is sought after by the 1031 buyer. So there's a lot lot of interest there. I think as you start to kind of put large portfolios together, it's really about the debt markets and the availability of debt. So I think at that point, it kind of trades not that vastly different from a lot of net lease assets and therefore, just kind of finding the right opportunity. But I think it's still, as evidenced by the performance, a very strong, resilient asset class that there's still good demand for.

I agree. And the other thing I would say, Rob, is that these buildings are pretty easily used for other, I'll call it, service retail use, be it a medical use or dental office. So there are other opportunities beyond just education.

Okay. And then one last one for Mark. What is your best guess as to where AMC will go off cash basis accounting, assuming no major issues going forward? And then how long after Regal would exit bankruptcy, would it be reasonable for them to go off cash basis accounting, given what you know today?

Really, we want to see continued stabilization of the box office, frankly, and stabilization of the tenant credit. So we don't really put a timeframe on that. We're going to be conservative with respect to that. Frankly, we're getting paid in recognizing revenue similarly to what we'd be recognizing otherwise. And we're not in a hurry to put a whole lot of straight-line rent on the books, which would be the result when we put them back from cash basis to accrual. So I don't really have a timeframe, but we want to continue to monitor, like I said, box office improvement and certainly tenant performance before we make that decision.

This next question comes from Ki Bin Kim of Truist.

Going back to the theater business, the 1.4x coverage, these operators obviously have to pay themselves, pay G&A, pay the bank back. What is, from their perspective, a healthy level of coverage because it probably has to be more than 1.4? And if you can break at that with what you think or what the industry thinks 2023 box office sales will be and where that coverage might drift up to?

Again, Ki Bin, I think the first point is, we operated for 20 years, probably in a range of 1.6 to 1.8 as a theater coverage metric. So I think kind of bracketing around that kind of 1.7 kind of midpoint has been deemed to be quite healthy. I think -- and I'll let Greg comment on this. I think that you're seeing kind of all over the board kind of expectations on 2023 because candidly, the film slate is still coming together, and everybody has kind of circulated around what really drives the box office number is the number of wide release films. And so I think that's kind of -- I think we feel like we're going in the right direction. I think with what's in production in 2020 -- headed towards 2024 as kind of the first real kind of stabilization number that I think -- and I'll speak and then Greg, that for 2024, we're seeing closer to a return to a $9 billion type of number. What it gets there this year between last year and that will be really about films and do they move into that -- into '24 or '23, so there's still a lot of cloudiness as we sit here in the first quarter as to where that ends, but the trajectory of where we're going based upon what the studios are saying right now is very positive toward a kind of a stabilization. Now even at $9 billion and above, that's still, call it, 20% down. But in that environment of 20% down, we think we still have a very healthy business. But Greg?

Yes, Ki Bin, the other thing I would say is sort of Greg is absolutely right. The number of major releases is of critical importance because major releases generally average about $70 million a title, but we also need smaller films to draw additional traffic to reach audiences that may have stopped coming to the theater. The ramp-up production is continuing. I think studios are understanding that they're going to make money in theatrical. I'll give you an example. Magic Mike's last stance was greenlit for HBO Max with the change in leadership at Warner Bros., they've decided to release it theatrically and it's made nearly $20 million. So we're kind of getting back to where we were in 2019 with theatrical bleeding into streaming and studios using flexible windows. So all that is pointing in the right direction as we heal the theatrical business.

And when you compare Regal's rent coverage ratios versus AMC, I think last time we spoke, it was pretty similar. Can you just remind us if that's the case? And when you look at your Regal locations, I'm just trying to better bracket out the downside, how many good competing operators are within like a reasonable radius of the Regal locations? I'm just trying to understand if other competitor even you take the lease?

Yes. I mean, again, I think there is -- there's no great -- not huge disparity as far as kind of the coverage idea. And I think, again, as we talked about earlier, it's truly kind of market by market. And I think there's -- there will be demand for a substantial number of these assets. We don't have any doubt of that. So I think it's -- again, it's going to be kind of market by market because when you have 57 assets, you can't paint kind of with a general brush. But Greg?

Yes. That covers it. Yes.

This question comes from the line of R.J. Milligan of Raymond James.

I was just curious if you can give us any indication or ballpark as to when you expect the negotiations with Regal to be concluded?

That would be a great idea, R.J. And if you had any insight into that, we would appreciate it. As -- again, that's -- it's not that we don't want this process to end, but let's just look at kind of the overall timeframe. When they entered bankruptcy in September, they said they would be out at the end of February. I think their latest plan says now they're going to be out in June. So again, there's just a lot of dynamics that go into it. If you think about what's going on in that, not only do they have landlords they're negotiating but they're also negotiating with existing lenders where they filed plans to convert about $3 billion to $3.5 billion worth of debt into equity. And so there's a lot of moving parts that they are continuing to work through. I think there are times that -- again, I just want people in the -- for transparency, even if we -- and we haven't, but let's just say in a month from now, we negotiate a deal, it may be until the end of the bankruptcy before we can announce that deal because of they may want us to keep that that information confidential and not share what we are negotiating -- what we've negotiated with relative to other landlords. So R.J., I appreciate the frustration. I appreciate the desire to want to kind of dimensionalize kind of both the timeframe and the impact, it's just very hard for us to do that at this time.

And while we'd like to clear the uncertainty, while we wait, we're getting paid 100% rent and 100% deferral payments. So we're we're doing fine as we wait, but we would like to resolve it.

Okay. That makes sense. And then my second question is for the 5 childhood education centers that are closing, is there anything specific about those as to why they're closing? And is that any indication in terms of the performance of the overall childhood education portfolio?

And I'll let Greg elaborate on this. But again, I don't know that there's anything -- I'm sure there's some performance issues, but you just went through a major acquisition M&A combination. So I'm also -- there's probably -- there's performance, there's rationalization, there's a lot of things that I think go into that mindset. Again, I think we're very pleased with having KinderCare, as Greg mentioned, as a credit upgrade, a public company so that we'll be able to have greater visibility to that. We -- as part of kind of when we did this 4 or 5 years ago, we have a rent reset that we think will recover a substantial portion of that back and it also gives us assets that free up to sell to recycle capital. So I don't think there's any read-through on the kind of general health of the early ed because as Greg spoke about, actually, we had attendance up, we had revenues up. So these were strong -- we had strong performance in the portfolio.

Interestingly, by the time you have the rent reset, which we think will offset the annual decrease, plus add in the fact that we got $7 million, plus we will sell these 5 properties in time. By the time we redeploy that, overall, when you look at it and step back, probably come up better than we were before in terms of NOI, although it will take a little time to get there.

This next question comes from the line of Aditi Balachandran of RBC Capital Markets.

Just 1 quick question from me. Going on with KinderCare, are there any other tenants with similar lease termination rents in KinderCare? A –Greg Silvers: Not really. We don’t – I mean, remember, this was negotiated when we – this is probably – Greg, you helped me 5, 6 years ago, when we did the Children’s Learning Adventure moving into this – the new operator prior to KinderCare? A –Greg Zimmerman: Crème de la Crème. A –Greg Silvers: Crème de la Crème to do that. But from a broad speed, termination rights are not something that we have in our portfolio.

This next question comes from the line of John Massocca of Ladenburg Thalmann.

Turning to the 4Q investment as you think about the investment in and Gravity House, just given how those were structured, what do you -- what are maybe just the rough LTVs on the mortgage investments you're doing in kind of the experiential lodging space?

Again, I'll let Greg, but I think it's closer to 60%-65%, and so they're pretty relative low LTVs and in a lot of these scenarios and Greg can speak to this. We also have conversion rights that we can at some point in time in the future, convert these to long-term thesis. So we are creating what we think is good optionality for us to control the property long term, but different than a development lease in a mortgage structure, you gain immediate income from those mortgage those notes. And then if we preserve the right to convert those in the future, it gives us a little bit better kind of income and visibility and deployment and impact.

Okay. That's very helpful. And then going back to Regal. If you think about the $87 million of kind of deferred rent that's owned by the tenant, if you do get assets handed back in bankruptcy, should we expect that amount to be reduced kind of on a one-for-one basis roughly to the amount of leases that are rejected, i.e., ex percentage of leases get rejected, it will be that deferral amount would be reduced by a similar percentage?

No, because it's actually driven by what the rent is on the various kind of properties that get the leases. And so they're not -- all leases are not $87 million divided by 57, and they're all -- so it would be very much kind of driven by the income associated to that specific lease.

Okay. So it's going to be very bespoke to the assets that either do or don't get --

Yes. Yes.

Okay. all right. That's it for me. And congrats any on the other end of the line.

This comes from the line of Ki Bin Kim of Truist.

Just a quick one. So excluding the theater tenancy, how are you thinking about bad debt for the remainder of the portfolio in 2023?

Yes. We put in kind of a general 1% reserve, frankly, with the coverage being at 2.7, we feel pretty good about that higher than it was in 2019, but we always put some reserves in for bad debt.

And any kind of more noticeable kind of concentrations within that bad debt or is it general --

Well, it's kind of a general reserve because, frankly, we really don't see many issues at all within our non-theater portfolio.

So it's just a general, it's not kind of specific, Ki Bin.

Okay. Great. And then just 1 more question on mortgage loans that you make. Are you -- is it all current right now, any kind of aging that's noticeable?

No. None. All current.

That concludes our Q&A segment for this presentation. I'll turn it back over to Greg Silvers for any further remarks.

I just want to say we -- thank you for everyone's participation today. We look forward to talking to you soon. And again, thanks to John for reminding us that we are the home of Super Bowl Champion, so we greatly appreciate that as well. So thanks, everyone. Have a great day.

Thanks.

And thanks, again. This does conclude the program. You may now disconnect.