Good day, and thank you for standing by. Welcome to the Q2 2023 EPR Properties Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Moriarty, Vice President of Corporate Communications. Please go ahead.

Okay, great. Thanks for joining us today for our second quarter 2023 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. 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 all 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 second quarter 2023 earnings call and webcast. During the quarter, our top line revenue grew approximately 8% and our FFO as adjusted per share grew approximately 9% versus the same quarter prior year. These results were driven by both a continued strong recovery in our experiential properties and consistent deferral collections. As we announced on June 28, finalizing the Regal restructuring agreement was a significant step in strengthening our theater portfolio and enhancing our overall company profile. The agreement provides us with significantly -- with a significantly stronger tenant, a long term master lease and a percentage rent component allowing us to participate in a recovering box office. This resolution, we also have more visibility into our earnings outlook and we're pleased to provide earnings guidance for 2023. Also, as recently announced, Southern Theatres was acquired by Santikos Theaters. Southern was our fourth largest theater tenant and has part of the acquisition, we repaid the remaining deferred rent. The strengthens action demonstrates renewed confidence in theatrical exhibition and strengthens our theater tenant base. Over the last few weeks, we've witnessed the power of theater exhibition and the validation of studios Apple and Amazon to commit to theatrical exhibition as the primary distribution platform for movie content. The combination of Barbie and Oppenheimer has become a societal event, which has transcended consumer demographics. Separately a low budget sound of frequent blue away box office expectations generating over $150 million year-to-date. This type of outperformance is hard to predict for any single film yet overtime it is proven to be a consistent occurrence for select films. Through July 31st, box office is up 20% versus 2022 and is currently tracking towards $9 billion for 2023. The writer and actor strikes present a fluid dynamic and may impact box office, depending on the length of time to resolution. In a bit of a positive sign, it has been reported that the writers guild in the studios have agreed to meet this Friday, which they have not done for three months. Regardless of this near-term dynamic, any impact is anticipated to be short-term as the participants understand that a robust theatrical business is a necessary part of the landscape, providing the primary path to economic viability for movies. Shifting to capital spending, we've completed approximately $100 million of investments to-date and are selectively growing our experiential portfolio, while being prudent in our capital allocation. Additionally, we've committed to approximately $224 million of additional experiential development and redevelopment projects over the next two years for which we already have the necessary capital. Now I’ll turn it over to Greg Zimmerman for more details on the quarter.

Thanks, Greg. At the end of the quarter, our total investments were approximately $6.7 billion with 363 properties in service, and 97% leased. During the quarter, our investment spending was $32.2 million, bringing our total investment spending for the first-half of the year to $98.7 million, 100% of the spending was in our experiential portfolio and included continued funding for experiential built-to-suit development projects and redevelopment projects commenced in 2022. Our experiential portfolio comprises 290 properties with 51 operators and accounts for 92% of our total investments or approximately $6.2 billion. And at the end of the quarter was 98% occupied. Our education portfolio comprises 73 properties with eight operators and at the end of the quarter was 93% occupied. All of the vacancy and education is from the properties held for sale at the end of the quarter. Turning to coverage. The most recent data provided is based on a March trailing 12-month period. Overall portfolio coverage for the trailing 12-months continues to be strong at 2 times. Trailing 12-month cover to theatres is 1.3 times with box office for the 12-months ending March 31st at $7.7 billion. For reference, trailing 12-month box office through June 30th, is $8.1 billion. Trailing 12-month coverage for the non-theater portion of our portfolio is 2.7 times. Now I'll update you on the operating status of our tenants. Regal completed its emergence from bankruptcy on July 31st, which is the effective date of the master lease and all ancillary documents. We received July rent and deferred rent from Regal. Mark will discuss amounts relating to our claims in conjunction with the completion of the bankruptcy case. We're pleased to report that the five surrendered Regal theatres operating through management agreements are open. Based on our experience with operating theaters and our strong relationships…

Thank you, Greg. Today, I will discuss our financial performance for the second quarter, provide an update on our balance sheet and close with providing 2023 earnings guidance. We had another strong quarter of results with FFO as adjusted of $1.28 per share versus $1.17 in the prior year, up 9% and AFFO $1.31 per share, compared to $1.23 in the prior year, up 7%. Now moving to the key variances by line. Total revenue for the quarter was $172.9 million versus $160.4 million in the prior year. This increase was due to improved collections from cash basis customers, the effective acquisitions and developments completed over the past year, as well as scheduled rent increases. During the quarter, we collected a total of $7.8 million of deferral payments from customers, of which $7.3 million was from those on cash basis accounting that was recognized as additional revenue. Per court order we also received an additional stub payment from Regal related to September 2022 minimum rent of approximately $0.7 million that was recognized as additional revenue this quarter. I will discuss how we expect cash basis deferrals and Regal's bankruptcy settlement on July 31st. The impact -- the remainder of this year in 2024 when I go over guidance. Percentage rents for the quarter increased to $2.1 million versus $0.5 million in the prior year, primarily due to improved performance at one ski property. On the expense side, G&A expense for the quarter increased to $15.2 million versus $12.7 million in the prior year, due primarily to higher professional fees, including those related to the Regal resolution, as well as higher payroll costs, including non-cash, cash share based compensation expense. During the quarter, we recognized an impairment charge of $43.8 million, primarily related to eight of the properties surrendered by Regal…

Thank you, Mark. As I stated in my opening comments, we are pleased to have delivered a favorable Regal outcome, which combined with the Santikos acquisition, means that the three of our top four cinema tenets now have very high quality balance sheets with minimal risk. Given these improvements in credit, the continued success of our non-cinema portfolio and the demonstrated consumer preference for out-of-home entertainment, we continue to believe that EPR offers a very attractive value for investors with a well-covered dividend and an opportunity for multiple expansion. With that, why don't I open it up for questions. Theresa?

Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from Joshua Dennerlein of BofA. Your line is open.

Yes. Hey, everyone. Good morning.

Good morning, Josh.

I just wanted to ask about the writer strike. At what point would the strikes start to impact your portfolio or the movies, being released? I'm just trying to curious if there's any risk to 2023 box office within the strike and certain restrictions around the accessibility to market during the strike?

Josh, what we know right now is there has been limited title movements yet. Again, it's -- it could be a potential if we see, I mean, the product that we've seen for the balance is generally done for ‘23, but it really begins with studios if they're going to move product either one to be supported promotionally by the actors or two, if they have any last minute kind of reshoots. So it's really in the purview of the studios. So we don't know right now. I think, the only what we would call bigger title. We've had one move that we're aware of. Everything else right now is standing path. Hopefully, as we've talked about, as there is beginning to be some discussions that, that will prove very fruitful and we can quickly move to kind of resolution of this and have little to no impact. But Greg, I don't know if you have…

No, I think you've covered it, Greg.

Thanks for that. And for 2023 guides, sorry if I missed this, is there any percentage rent included in your guidance range for the back half of the year?

Yes, yes. Oh, yes for the back half of the year, yes, we said that for percentage rents for the year are going to be $12 million. And as I said, percentage rent as it has been historically is kind of heavily weighted to the fourth quarter. So we expect about 50% of it in the fourth quarter and the remainder of what -- wasn’t recognized in the first six month to be in the third quarter. So yes, there's definitely percentage rents in the back half. None related to Regal, if that was your question, those that percentage rents based on lease year and we expect that to hit next year depending on box office.

Okay. Perfect. Yes, that was -- what I was trying to get at. Appreciate it.

Thanks, Josh.

Thanks, Josh.

Thank you. [Technical Difficulty] question comes from Todd Thomas with KeyBanc Capital Markets. Your line is open. Mr. Thomas, your line is open.

Yes, hi. Sorry about that. Just first question, so appreciate the detail in the earnings slide around the deferred rent payments and other revenue collections in the third quarter and really through 2024. So just to be clear, so after the incremental $11 million you expect to see in 3Q, or $0.14, the decrease in 4Q versus 3Q that you're anticipating that gets us to a relatively clean run rate in the fourth quarter as we think about 2024? Is that the right way to think about it in terms of, all the non-recurring items, it'll just leave us with a pretty clean run rate beginning in fourth quarter of this year?

Correct. We only expect about $300,000 to impact as far as deferral and these kind of out period stuff to impact the fourth quarter. I think the fourth quarter will give you a clean run rate, but remember we have some seasonal businesses and so forth and percentage rents, heavily weighted to fourth quarter. So there's other adjustments rather than just taking it times for to do, but it is a clean number as far as deferrals and stub payments and so forth. And like I said, only a very small number expected to be recognized in Q4.

Got it. Okay, and then can you comment a little bit more on the theater sales? It sounds like there is interest from other existing theater operators. I'm just curious, if you can discuss the potential timing and how we should think about those carry costs, sort of, coming offline?

Sure, Todd. It's Greg. So historically, over the last 2.5 years, we've sold 10 theaters, six of those were for non-theater use, four for theater use. So that kind of gives you the goalpost. We needed to wait to market these, because Regal hadn't notified the individual theaters that they were closing and we wanted to be mindful of their employees, et cetera. So we really only started hard marketing last week, but we were out soft marketing before. I'd say of the 11, we've had interest of some sort in about eight. We're already approaching labor days, so the idea of being able to get something closed this year might be difficult given the timing of real estate transactions, but I would expect we'll start to see a cadence toward the end of this year and into next year for selling those. And again, if you look at the run rate over the last 2.5 years, we saw about three or four year.

Okay. And do the discussions that you're having, negotiations at all. Are they impacted at all by the strikes that are ongoing right now or is that not really a consideration? And then separately on the strikes, Greg, I'm just curious, to the extent that there is a resolution here, if the strikes are extended a little bit further here, but you get a resolution. I mean, how quickly does production re-ramp and the release schedule get back on track to the extent that there are some delays here. Any sense there?

So, Todd, I'll take the first part and then I'll let Greg answer the second part. Actually, I would say the answer is there's zero impact from the strike. As Greg mentioned in his remarks, the fact that Santikos was willing to buy Southern clearly shows that people are seeing the continued recovery of theatrical exhibition. And obviously that's amplified by the just unbelievable success of Barbie and Oppenheimer, which just as I said before, record shattering. So, we actually have quite a bit of interest from theatrical exhibitors for some of these theaters.

Yes. I'll echo Greg's comments. I don't think it's actually, but I think most people in the industry are seeing this as a short-term issue. I mean, if you think about, these have occurred periodically, I think they're more encouraged by all the studio's commitment to theatrical and how it is bound back. And I would say there's probably more rather than less optimism right now in the theater space. As far as turning it on and ramping up new production is really about probably not now into latter half of ’24 and ’25 most everything through the first-half of ’24 is in post-production and so there's just, kind of, small minor reshoots or voice over or promotional aspects of it. So I would think we believe that really right now, if we solved it sooner rather than later, we'd have minimal impact on ‘24.

Okay, great. Thank you.

Thanks, Todd.

Thank you. Our next question comes from Eric Wolfe with Citi. Mr. Wolf, your line is open.

Hey, thanks for taking my questions. So I understand your comment about the restructuring agreement not providing any sort of extra percentage rent from Regal this year. But just to confirm that the $12 million that's in your number, that doesn't include any sort of Regal contribution whatsoever? And then if I were to think about, you know, let's just say the box office next year is $9.4 billion in line with that presentation you put out, is all of the Regal percentage rent and all of that extra operating income sort of incremental to 2024 or some of that being included in the 2023 guidance?

So none of the percentage rents are operating at theater profit is in ’23 guidance, because the percentage rents are lease year driven and it really will hit sort of second and third quarter next year. And as far as operating theater, while there could be some profitability, we're budgeting that or including in our guidance sort of a breakeven amount this year. And then as Regal transitions to both Cinemark and Phoenix. And then as we go into next year though, we definitely expect those to be profitable. And I think in our presentation, we said to the tune of about $6 million. So none of that's in this year and should hit next year.

Okay. All right. So I'll -- yes, right, I mean, that was actually mean it's incremental to it. But, so if I think about that, the $9.4 million box office, you know, I'm just curious, you outlined in your presentation like $14 million in percentage rents and operating income that would come from that. I'm talking about the restructuring agreement presentation you put out before. I guess, how much variability could there be around that number assuming there's a $9.4 billion box office? Could that be $10 million or $18 million? Just curious if you assume a certain box office level how much variability there would be around some of those numbers? Thanks.

Yes, I think you mentioned a $14 million number that's the deferral and stub payments for ‘23 in our presentation for Regal. The number we put at that box office of around $9.4 million was $8.7 million…

And he's combining the two, $8 million and the $6 million.

Oh, the $6 million. Okay, gotcha. So first of all, I think one of the benefits as we set that number basically at trailing 12-months, I think 2022.

Yes, I mean, again the…

We should be as far as variability. The percentage rent is -- was really based upon, Regal maintaining their current market share. So again, there was no -- so could it go up or down? But historically, if you look over years, they've had that market share. Now they've closed some theaters, so there could be that traffic's going to move to other places. So we could see a little bit of up in that. I would say the variability is going to be in the operating theaters. I mean, again, these are new theaters for these guys to operate. They -- now the good thing is they're getting their hands on them now and we didn't budget anything. So they've got four or five months to get their hands on. But we worked with them, to kind of come up with those numbers. But I -- so I think if the box office delivers it, it's I think we're in good shape there.

We put together a schedule in our Regal presentation that kind of showed that variability. So if box office, for example, was at $9.4 million, it was $9 billion percentage rents of sort of $8.7 million and $7.1 million. And in profitability of the operating theaters. You can see that variability on the chart that we showed in our Regal presentation to kind of vary based on box office. Now as Greg said, there's other things that could impact the individual performance of theaters versus box office, but the primary indicator of performance for both the percentage rents and operating theater profit is box office.

Got it. That that's very helpful. Thank you.

Thank you for your question. Our next question comes from RJ Milligan with Raymond James. Your line is open.

Hey, good morning guys. So I'm going to take a different stab at the box office projection questions. But on slide seven, you guys show the projections for -- it's the median, I guess, for multiple analysts for the box office projections for ’23 and ’24 $9 billion and $9.8 billion. I'm curious if you've seen any movement in sort of that mean, estimate for ‘23 or ‘24, just giving what's going on with the writer strike. And I'm curious and I think Josh asked this question, but how long before you adjust your own internal projections of I think it was $9.4 billion for the lease year and $9.8 billion for 2024 to sort of get to your numbers. How long does the strike need to last before you relook at those estimates and say, maybe we need to take those down?

Yes. I think, again, I think right now, I'll take the second part of that first is the $9.4 billion is really about that runs from kind of July 31st to next year. As long as we don't see a lot of titles moved, that number feels pretty good, because if you think about that's the first-half of the -- last half of this year and first-half of next year. So I would say the risk is, if it is prolonged, is to the $9.8 billion, that meaning that the second-half of next year, but I still think that we feel that the good thing, RJ, is this trajectory is probably at risk of just balancing out, meaning that if we have if we thought it was going to be $9 billion and $9.8 billion that it balances to $9.2 billion on both. If you look at currently what's going on, we're not making any changes, because as I said, we've really had one film that we're aware of, of any meaningful expectation that's moved. And we've had such outperformance to-date that we've overcome that. So this year's numbers, we haven't seen really a lot of people move. But if anything, people probably would be moving their number up this year, but they're kind of holding it right now. But Greg, do you have any?

No, I agree. I mean, I think, RJ, the critical point is that whatever movie might have moved has been more than offset by the outperformance of Barbie Oppenheimer and…

Sound of Freedom.

Sound of freedom. Thank you. Sorry, yes.

Got it. But the Barbenheimer, duo is not -- would not be in your lease year for renewal. When you…

Yes. [Multiple Speakers] Yes, some of it will be. I mean, right now, we're in the last week, we're in the Barbenheimer period. And as, you know, Greg noted, second highest weekend ever. So there's still -- we're still benefiting again, anytime if you talk to somebody in the industry when you're in August, and you have a -- even this weekend where we're going to have probably between those two approaching $100 million or over $100 million out of those two films this weekend is a really strong August.

Plus Teenage Mutant Ninja Turtles.

Yes. So I mean, we're probably easily going to have above $150 million top 10 film weekend. This is, would be great in any August.

Thanks. That's helpful. I want to -- I think it was Todd that commented on the clarity, on the deferral and other revenue collections. So that's very helpful. Thank you. But, Mark, I'm thinking about sort of the 2023 guidance and bridging to 2024, I think that you're going to see, at least according to this, it's about $35 million of lower stub and deferral payments expected ‘23 versus ‘24. And then there's, I think, a $17.8 million reduction in a Regal rent. So that's about $52 million that's going to be coming out of ‘23 as we look into ’24? And then what you need to add back is the operating theater profit and then the percentage rents? What else am I missing?

Yes. Let me take that a little differently, because I think maybe the Regal part of that might have been a bit overstated. So if you take the $5.10 guidance this year, as you mentioned, we have $35.7 million most of which is non-recurring, that's worth about $0.47 gets you to $4.63. As far as regal, if you think about it, we had once you get rid of all those deferrals, which I just did in stub payments and so forth, you end up with really we had seven months of full income in ‘22 that we don't expect in ’23, because the last five months will be the same for both periods. So you have seven months. So if you take those seven months, it was around $7.3 million a month is what the old rent used to be and you take about 22% of that because that was the base rent cut. That's worth about $11 million year-over-year. So base rent going down $11 million. And then you have to add to that, what you said, the percentage rents, let's call that $8.7 million we'll take a look at that as we give guidance in February, but that's what we put out and it seems to be tracking. And operating theater property profits of another $6.3 million, that's $15 million going the other way. So it's actually once you back out deferrals and all those noise for Regal, Regal is actually going up next year, again, subject to box office, up about $3.7 million. And then as we mentioned, we're also putting Regal on accrual basis accounting, which is worth about another $2.5 million. So kind of a $6.2 million increase for Regal. So again, you take the $5.10, subtract the $4.7 here at $4.63 add in about $0.08 for the Regal impact. You're kind of sitting at $4.71-ish before any growth from this year and next year and all the other puts and takes in G &A and so forth. But that kind of gives you a sort of a starting point.

That’s very helpful. That’s it from me guys. Thank you.

Thanks, RJ.

Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Your line is open.

Yes, thanks. I guess not to belabor the writer's strike, but Greg Silvers, I believe on the June call that you highlighted that if the writer strike was resolved in 40 to 50 days post that end of June call that there'll be middle to -- minimal to no impact. I guess that would put us into mid-August. So, I mean, if we get in through mid-August and this is not resolved, is that when we should start thinking about this could be having an impact on some of these movie delays?

Yes. I mean, I think we're still consistent with that. And I think what I said was that we thought it's really -- we still believe that it's later in 2024. Now they could move titles and remember, we're just moving titles from ‘23 to ‘24. And as we see outperformance in ‘23, if studios want to derisk some of that. They can move that kind of into ‘24. But I think as we move into the August and September timeframe is when we will start to see if titles are moving. And if or if there's progress in the discussions and they are, don't feel or they feel that they're good on track. But Greg, I don't know if that’s consistent with what you think. But so I think that logic still holds, Michael.

Okay. That's sounds good. And then the way that we should think about, too, is, I mean, obviously, you have leases that a lot of these theaters, so you're not -- that's not going to impact it, but like the Regal percentage rents, your operating theaters, that's going to be impacted. How much percentage rents do you have outside of that Regal restructuring that could be impacted by some of those movement?

It's very minimal.

Yes.

Our percentage rent, for example, this year is non-theater related.

Okay, great. and then going to back to the investment market, I know you talked a little bit about the 11 assets held for sale, but what about the value for like the high quality theaters? I mean, is there a market forming where you could potentially sell some of your higher end type assets, theater assets. Is there starting to be interest out there?

I think there's always. And I think as Greg talked about, some of these 11 that we'll take -- will probably be sold as theaters. But it's always about highest and best use. And if you look at what the theater that we sold this year, that Greg just reported on, even though it's going to a non-theatre use. This was a -- based on previous rents, a low-single-digit cap rate that we achieved on that. So I think it's truly about and Greg and his team and our asset management team trying to just determine what is the highest and best use. It's always nice as we're starting to see now theater operators come in and starting to bid these properties, but it's the juxtaposition of, okay, does it have a higher and better use, and we can put non-theater use versus theater use as competing bids.

Yes. And Michael, to the extent you're talking about selling theaters as theaters for cash flow, we're starting to see some green shoots there. And again, I think the fact that Santikos was willing to buy Southern shows that the theatrical exhibition business is recovering nicely.

Okay, great. Thank you.

Thank you. Our next question comes from Jyoti Yadav from JMP Securities. Your line is open.

Hey, guys. It's Mitch here, I think a lot of the Regal and other topics have been covered. I was curious a little bit about some of the dispositions. Greg, I think you said that there were the vacant assets, but I'm curious about potentially considering maybe some non-core or even core dispositions here, in this environment on top of, you know, kind of what you're doing with Kinder Care and Regal?

Again, like I said, you know, we'll always consider those things. I think we had a lot going on with resolving Regal and getting this and think about we had our fourth largest tenant just changed hands. So over the quarter, we've had a lot going on. I think we've got quite a few dispositions that we're managing right now, but we're going to look at all of those things, Mitch, as we kind of remove the overhang that was a parent for the first-half of the year. But kind of as we go forward, you start to look at some of the things we're talking about. And as I said, our three of our four largest theater tenants now, we're -- if you look at Regal better -- we've been talking about that they're going to come out on a sub-3 balance sheet kind of debt to EBITDA. But if you look at the proformas that they presented in their balance, they're actually going to come out sub-2. And we're talking about a Santikos that now may have little to no debt in their entire structure. So I think overall, we have spent a lot of time getting that theater portfolio. And Greg and his team and Mark and his team are getting these things into a position that we have fantastic theater tenants into a rising and recovering box office. So I think that was our focus in getting those things right. And now as we move forward we’ve got an opportunity to create additional capital, as Greg has talked about many times, we have good opportunities. And we'll start kind of balancing all of those things out to whether it's some of our operating education, which Greg relied is performing very well. And some of these other assets we have a stated intent and continued belief to lower our theater exposure. And as that market comes back and as we're starting to see capital flow into exhibition. We're going to see more and more opportunities. So we're very encouraged about not only our to raise capital, but the ability for the market to recognize the improvements that have been made not only in terms of the exhibition world, but in the terms of the quality of the tenants that we have now relative to their -- relative to that recovery. And I think it'll create opportunity. But Greg?

I think that's right.

Great, last one for me. I know that, you guys went over some of the puts and takes from ‘23 to ‘24. I'm curious how much G&A in ‘23 was allocated to Regal that, you know, kind of doesn't recur heading into ’24?

Yes, it's probably around a couple of million dollars actually that was kind of prolonged and a lot of work went into that. So we do expect G&A to come down next year. Q - Mitch Germain Thank you.

Thank you, Mitch.

Thank you. I'm showing no further questions at this time. So I would now like to turn the conference back to Greg Silvers for closing remarks.

Thank you, Theresa, and thank you all for joining us. Again, we look forward to talking to you in the coming months. And as always, if you have any questions, be sure to reach out. So thanks, everyone, and have a great day. Bye-bye.

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