EPR Properties (EPR) Q4 2022 Earnings Call Transcript

EPR Properties (NYSE:EPR) Q4 2022 Results Conference Call February 23, 2023 8:30 AM ET

Company Participants

Brian Moriarty - VP, Corporate Communications

Greg Silvers - Chairman, CEO

Mark Peterson - EVP, CFO

Greg Zimmerman - EVP, CIO

Conference Call Participants

John Massocca - Ladenburg Thalmann

Joshua Dennerlein - BofA Securities

Ki Bin Kim - Truist

R.J. Milligan - Raymond James

Rob Stevenson - Janney Montgomery Scott

Aditi Balachandran - RBC Capital Markets

Operator

Good day, and convey you for opinionated by. Welcome to nan Quarter 4 EPR Properties Earnings Conference Call. [Operator Instructions]. Please beryllium advised that today's convention is being recorded.

I would now for illustration to manus nan convention complete to Brian Moriarty. Please spell ahead.

Brian Moriarty

Thank you, Chris. Thanks for joining america coming for our 4th fourth and year-end 2022 net telephone and webcast. Participants connected today's telephone are Greg Silvers, Chairman and CEO; and Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO.

We'll commencement nan telephone by informing you that this telephone whitethorn see forward-looking statements arsenic defined successful nan Private Securities Litigation Act of 1995, identified by specified words arsenic will be, intend, continue, believe, may, expect, hope, expect aliases different comparable terms. The company's existent financial information and nan results of operations whitethorn alteration materially from those contemplated by specified forward-looking statements. Discussion of those factors that could origin results to disagree materially from those forward-looking statements are contained successful nan company's SEC filings, including nan company's reports connected Form 10-K and 10-Q.

Additionally, this telephone will incorporate references to definite non-GAAP measures which we judge are useful successful evaluating nan company's performance. A reconciliation of these measures to nan astir straight comparable GAAP measures are included successful today's net merchandise and supplemental accusation furnished to nan SEC nether Form 8-K.

If you wish to travel along, today's net release, supplemental and net telephone position are disposable connected nan Investor Center page of nan company's website, www.eprkc.com.

Now I'll move nan telephone complete to Greg Silvers.

Greg Silvers

Thank you, Brian. Good morning, everyone, and convey you for joining us connected today's 4th fourth and year-end 2022 net telephone and webcast. For nan afloat year, we delivered 52% per stock maturation successful FFO arsenic adjusted, demonstrating our continuing betterment and nan resilience of our experiential investments.

This resilience is besides reflected successful our improving theatre rent sum levels and nan continued spot of our non-theater rent coverage. Even against nan backdrop of recession fears, nan user continues to support our affordable thrust to experiential properties.

We are besides pleased that successful nan 4th fourth and done February 2023, we person received each scheduled rent and deferral payments from Regal arsenic we are moving done nan process toward a resolution.

Our tenant industries proceed to show patient momentum. This is peculiarly evident astatine nan container office, which was up by much than 64% successful 2022. Sustained wide merchandise contented continues to beryllium nan cardinal constituent for occurrence arsenic nan number of wide merchandise films person grown, summons cells person grown and awesome studios person reasserted their attraction connected theatrical releases.

During nan year, we besides resumed our finance spending, deploying superior successful a disciplined mode crossed a assortment of experiential properties. After pausing our finance spending for astir 2 years during nan pandemic, our efforts successful 2022 validate our expertise to identify, underwrite and adjacent value transactions successful nan experiential space.

For nan year, we closed transactions weighted astatine complete $600 cardinal pinch complete $400 cardinal being deployed successful 2022 and nan equilibrium being deployed successful 2023 and 2024. We are capable to money these commitments without raising further superior and nan mean headdress complaint connected these investments was complete 8%.

As we've stated successful nan past, nan immense mostly of our investments travel done our web of tenants and partners. Our extent and breadth of knowledge successful nan experiential existent property investing is unmatched among REITs. In 2022, this was evidenced by our description successful nan burgeoning areas of fittingness and wellness, specified arsenic nan organization of climbing gyms, caller wellness opportunities and nan time-tested acquisition of earthy basking outpouring SPAs and our caller business pinch Colorado-based Gravity House.

In 2023, we expect to proceed expanding our experiential portfolio pinch prime investments successful properties accordant pinch our maturation strategy. Our maturation pipeline remains robust arsenic caller and existing concepts and clients proceed to turn to meet nan demands of their experience-focused customers.

Our situation remains not 1 of opportunity alternatively that our costs of superior has not recovered arsenic quickly arsenic our properties. We will, however, stay patient successful our disciplined approach, focusing connected nan highest value and nan champion risk-to-reward investments.

At this time, we aren't providing net guidance owed to nan uncertainty of Regal's bankruptcy proceeding. However, we stay assured successful our outlook and are maintaining our well-covered monthly dividend to communal shareholders astatine its existent level. While we still person activity to do to regain our afloat momentum, we are heartened by our important progress, and we stay resolute and assured successful nan value of our properties.

Lastly, I'm pleased to invited John Case to our Board of Trustees. John brings a wealthiness of knowledge and acquisition successful nett lease existent estate, and we are excited to use from his expertise arsenic we proceed to turn and grow our portfolio of experiential assets.

Now I'll move nan telephone complete to Greg Zimmerman, who will screen our business successful greater detail.

Greg Zimmerman

Thanks, Greg. At year-end, our full investments were astir $6.7 billion, pinch 363 properties successful work and 97% leased. During nan quarter, our finance spending was $81.2 million, bringing nan full finance spending for 2022 to $402.5 million. 100% of nan spending was successful our experiential portfolio, and included nan acquisition of a task for redevelopment and further financing for an existing asset.

Our experiential portfolio comprises 289 properties, pinch 49 operators and accounts for 92% of our full investments aliases astir $6.2 billion, and astatine nan extremity of nan 4th was 97% occupied.

Our acquisition portfolio comprises 74 properties pinch 8 operators, and astatine nan extremity of nan quarter, was 100% occupied. Our value-oriented drive-to destinations supply a compelling worth proposition for families. To date, we person not seen meaningful effect connected our operators from inflation, and we stay assured they will proceed to beryllium resilient.

Turning to coverage. The astir caller information provided is based connected a September trailing 12-month period. Overall portfolio sum for nan trailing 12 months continues to beryllium beardown astatine 2x. Trailing 12-month sum for theaters is 1.4x pinch container agency astatine $7.7 cardinal for nan aforesaid period.

Trailing 12-month sum for nan non-theater information of our portfolio is 2.7x. Now I'll update you connected nan operating position of our tenants. Q4 full container agency was $1.8 billion. Total North American container agency for 2022 was $7.4 cardinal compared to $4.5 cardinal successful 2021.

Our high-quality theatre portfolio continues to outperform nan industry. When beardown pictures are disposable theatrically, nan nationalist is responding very favorably and nan results beryllium it out. Three films released aft nan pandemic are among nan apical 9 highest grossing North American container agency films of each time.

Spider-Man No Way Home is #3 astatine $814 million. Top Gun Maverick is #5 astatine $719 million. And Avatar: The Way of Water, which opened connected December 16, and is #9 astatine $658 cardinal to date.

We are eagerly anticipating nan 2023 slate. The apical 5 announced titles, each of which could transcend $200 cardinal successful North American container agency are Ant Man and The Wasp, Quantumania, which opened February 17 and generated $120 cardinal successful home container agency complete nan President's Day vacation weekend.

Guardians of nan Galaxy 3, Little Mermaid, Captain Marvel 2 and Aquaman 2. As a recovering container agency demonstrates, erstwhile location are movies to see, consumers of each ages are returning to nan theater. They still want to spot bully films connected nan large screen. Studios admit nan economical use of nan theatrical tally and person accrued accumulation and refocused connected theatrical accumulation station COVID.

We stay assured that nan proviso of films for theatrical merchandise will proceed to grow. As antecedently disclosed, connected September 7, 2022, Cineworld revenge for bankruptcy protection successful nan United States Bankruptcy Court for nan Southern District of Texas.

We person received our full October, November, December, January and February rent payments, on pinch nan deferred rent payments owed successful those months, and we person besides received tribunal ordered September stubborn payments successful December, January and February.

Because nan bankruptcy process is ongoing, beyond those updates, we will not remark astir Cineworld. Turning now to an update connected our different awesome customer groups. We proceed to spot bully results and ongoing user request crossed each segments of our drive-to value-oriented destinations.

Our Eat & Play assets continued their beardown post-pandemic capacity pinch portfolio gross for 2022 up 13% and EBITDARM up 12% complete 2021. Many of our attractions and taste portfolio had accrued gross and attendance successful 2022 versus nan anterior year.

Primarily because of accrued labour costs, respective assets had little EBITDARM, but capacity remained strong. We are peculiarly pleased pinch nan capacity of Santa Monica and nan City Museum successful St. Louis. Both proceed their post-CoVID upward momentum.

Revenue and attendance exceeded our expectations and projections astatine our 2 Canadian parks, and Calypso Water Park, The Hotel opened for nan play connected January 4 and will adjacent connected March 18. Both Titanic museums had grounds years for attendance, gross and EBITDARM and were nether building to adhd nan Titanic Chocolate shop successful Pigeon Forge.

We proceed to spot beardown occupancy and ADR maturation astatine nan Springs Resort. We expect commencing building successful Q2 for some nan description of nan springs and nan redevelopment of nan convention halfway into a earthy basking springs resorts.

In our fittingness portfolio, rank has exceeded pre-pandemic numbers pinch gross continuing to turn year-over-year. Midway done nan 2022-'23 play capacity crossed our skis portfolio is strong.

Q4 gross was up importantly from Q4 2021. Visits are up, resorts are returning to normal staffing levels from some services, including F&B outlets, immoderate of which were closed intermittently successful nan 2021-2022 season.

Good early play snowfall helped Northstar. And while snowfall successful nan East wasn't rather arsenic strong, capacity has still been favorable. Room renovations are underway astatine Resort successful Alaska, which will further fortify nan starring Four Season edifice successful Alaska.

Our Margaritaville Hotel Nashville approximate to each of Nashville's celebrated downtown destinations had an fantabulous 2022 pinch important increases successful each metrics. Now that renovations astatine some nan Beachcomber and bellwether resorts successful St. Petersburg complete, we're seeing stronger ADR and RevPAR numbers.

As of January 1, we rebranded our Cajun Palms RV Resort to Camp Margaritaville Brow Bridge to spell on pinch our very successful Camp Margaritaville RV Resort and Lodge successful Pigeon Forge.

Our acquisition portfolio continues to execute good pinch year-over-year increases crossed nan portfolio done Q3 of 13% successful revenue, 8% successful EBITDARM and 3% successful enrollment. As noted connected our past 4th call, during Q4, KinderCare acquired Creme de la Creme, which we position arsenic a in installments enhancement.

During Q4, we received $7 cardinal arsenic a information costs successful relationship pinch nan waste of Creme de la Creme. We expect that KinderCare will execute a preexisting lease termination correct successful Q2 for 5 early acquisition properties representing $2.8 cardinal successful yearly contractual rent. We person plans to waste each 5 properties and redeploy nan proceeds successful experiential assets.

The remaining KinderCare leases incorporate contractual rent accommodation effective January 1, 2024, based connected performance, which we expect will partially offset nan anticipated rent simplification based connected terminations.

Turning to a speedy update connected superior recycling. During nan quarter, we sold a vacant theatre for nett proceeds of $1 cardinal and recognized a summation of $300,000. We proceed discussions pinch aggregate parties connected our 2 remaining vacant theaters.

During Q4, our finance spending was $81.2 million. On our Q3 call, we noted that successful early Q4, we closed connected a committedness pinch a caller partner to supply up to $68 cardinal successful semipermanent owe financing for nan description of existing project, but we couldn't springiness specifications pending our customers' nationalist announcement.

Now we can. The finance will money nan summation of an indoor h2o parkland astatine nan Barbarian successful lodge successful Frankenmuth, Michigan, Located successful 1.5 hours from Detroit, Frankenmuth is Michigan's small Bavaria. With 3 cardinal yearly visitors, it's 1 of Michigan's starring tourer attractions known for its yearly October Fest, nan world's largest Christmas shop and galore different celebrated events and festivals.

Travel and Leisure precocious named Frankenmuth 1 of nan apical 20 astir beautiful wintertime towns successful America. The Zender family has operated nan Bavarian successful lodge for astir 40 years, and we are very excited to participate pinch nan family to grow this iconic property. In addition, successful a caller business we funded $56.8 cardinal of an astir $64.5 cardinal committedness for owe financing secured by 6 fittingness and wellness properties operated by Gravity House, successful Breckenridge, Aspen, Vail, Steamboat Springs, Winter Park and

We've besides entered into a narration statement to finance early growth. Gravity House is simply a cutting-edge nine exemplary conception providing fitness, wellness, eating and lodging and outstanding experiential locations.

Condinast Traveler, precocious named Gravity House Breckenridge, nan 10th champion edifice successful nan Southwest. We're delighted to partner pinch Gravity House. Both these caller relationships show our industry-leading expertise to root and curate unsocial experiential opportunities. Finally, successful our continuing business pinch Northgate Resorts, we acquired Jellystone Cosy Rest successful Harrisville, Pennsylvania, adjacent Pittsburgh, pinch a scheme to grow and renovate nan asset.

EPR's liking is 62%. Our information of nan acquisition value was $6.5 million, and our information of nan indebtedness for description and renewal is expected to beryllium astir $13.9 million. This brings our RV edifice investments to 4 arsenic we build retired this unchangeable experiential lodging plus class.

Cap rates for 2022 exceeded 8% and continued to beryllium successful that scope successful 2023, which should create compelling semipermanent value. As I mentioned, our full finance spending for 2022 was $402.5 million, wholly successful our experiential portfolio.

A number of these transactions will beryllium funded done 2023 and 2024, truthful nan full worth of transactions closed successful 2022 was complete $600 million. We're highly pleased pinch nan value and breadth of our experiential diverseness we achieved successful 2022. This was each driven by nan difficult activity of our investments and underwriting team, leveraging our unmatched web of tenants and partners.

We added one-of-a-kind properties, including villages, and Calypso Waterpark successful Canada and nan Bavarian successful Frankenmuth. We developed a caller narration pinch Gravity House, a cutting-edge usability pinch 6 well-located assets. We collapsed crushed connected a caller successful densely populated King of Prussia, Pennsylvania, and opened a apical play successful nan ascendant Ontario, California market.

We strengthened our Springs Resort successful Pagosa Springs and invested successful nan acquisition and redevelopment of a convention halfway successful Murrieta, California, into a brand-new earthy basking springs edifice successful a densely populated marketplace proximate to some Los Angeles and San Diego. We acquired a activity climbing yoga fittingness location successful Lincoln Park successful Chicago, and we added to our finance successful Alyeska Resort, Alaska's premier Four Season resort.

We're issuing finance spending guidance for costs to beryllium deployed successful 2023 successful a scope of $200 cardinal to $300 million. Through nan extremity of 2022, we committed astir $250 cardinal for experiential improvement and redevelopment projects that person closed but are not yet funded to beryllium deployed complete nan adjacent 2 years. We expect astir $175 cardinal of that $250 cardinal will beryllium deployed successful 2023, and that is nan magnitude included astatine nan midpoint of our 2023 guidance range.

In almost each of our experiential categories, we proceed to spot high-quality opportunities for some acquisition and build-to-suit redevelopment and description . We person a robust pipeline pinch caller and existing customers and concepts.

Given nan existent backdrop, we are exercising subject and person consciously decided to trim our near-term finance spending and to money those investments chiefly from rate connected hand, rate from operations and pinch our borrowing expertise nether our unsecured revolving in installments facility.

As Greg noted, we are constricted by nan betterment of our costs of capital, not by opportunity. We are being much judicious pinch early investments pinch our disciplined attack to acquisitions to Shepherd Capital until economical conditions amended and our costs of superior returns to humanities levels.

Our attraction connected improvement and redevelopment investments successful 2022 will lead to accrued gross successful 2023 and 2024 arsenic these investments afloat travel online.

I now move it complete to Mark for a chat of nan financials.

Mark Peterson

Thank you, Greg. Today, I will talk our beardown financial capacity for nan 4th and supply an update connected our equilibrium sheet. FFOs adjusted for nan 4th was $1.25 versus $1.08 successful nan anterior year, and AFFO for nan 4th was $1.27 per stock compared to $1.11 successful nan anterior year.

Before getting into nan details, astatine a precocious level, our results for nan 4th importantly exceeded nan midpoint of our guidance owed to nan following: first, further rent and deferral collections from Regal; second, further deferral collections from non-Regal customers; third, further percent rent received; and fourth, amended capacity astatine our JVs and managed properties.

Now moving to nan cardinal variances by statement item. Total gross for nan 4th was $178.7 cardinal versus $154.9 cardinal successful nan anterior year. This summation was owed chiefly to improved collections from definite tenants, which proceed to beryllium recognized successful gross connected a rate ground aliases had antecedently received abatements. With respect to Regal, we received each monthly rent and deferral payments for October done December arsenic good arsenic a information of nan September monthly rent and deferral payment.

Both nan December deferral costs of astir $1.5 cardinal and nan partial September costs of astir $0.8 cardinal were not included successful nan midpoint of anterior guidance arsenic we had not yet received these amounts by nan clip of our past call.

Also contributing to nan summation for nan 4th versus anterior twelvemonth pinch scheduled rent increases arsenic good arsenic nan effect of acquisitions and developments completed complete nan past year, this summation was partially offset by nan effect of spot dispositions.

During nan 4th quarter, we besides collected each deferred rent and liking owed from non-Regal customers. Recall that we did not see astir $0.5 cardinal successful nan midpoint of our anterior guidance representing nan December deferral costs owed from these customers.

In full for nan quarter, including Regal, we collected $6.2 cardinal of deferred rent from rate ground customers that was recognized arsenic gross erstwhile received. At December 31, we had astir $117 cardinal of deferred rent owed to america not connected nan books, which will proceed to beryllium recognized only arsenic rate arsenic received.

Regal makes up astir $87 cardinal of this equilibrium and is taxable to nan bankruptcy negotiation. Note also, arsenic Greg mentioned, we person already received afloat rent and deferral payments from Regal successful January and February and person collected each nonlegal deferral amounts owed for those 2 months arsenic well.

Finally, we collected $4.6 cardinal of deferred rent from accrual ground tenants that reduced receivables leaving connected a equilibrium connected our books astatine December 31 of only $2.1 million, we expect to cod astir $1.6 cardinal of this remaining equilibrium successful 2023.

Moving on, we had higher different income of $7.7 cardinal versus nan anterior year, chiefly owed to $9.1 cardinal successful income information income recognized during nan 4th offset by a summation connected security betterment of $1.2 cardinal recognized successful nan anterior year.

The income information income included $7 cardinal successful rate received successful relationship pinch nan waste of Creme de La Creme's early puerility acquisition business to KinderCare and $2.1 cardinal successful rate received successful relationship pinch nan waste of a skis spot that secured a owe loan, which was paid successful afloat successful 2019.

Note that nan waste information income has been excluded from FFO adjusted and AFFO. Additionally, we expect KinderCare to workout a lease termination correct pinch respect to 5 early acquisition properties during nan 2nd 4th of 2023, representing $2.8 cardinal successful yearly rental income.

The remaining 16 leases person a contractual rent accommodation based connected capacity that is effective connected January 1, 2024. We expect this accommodation will partially offset nan anticipated rent simplification related to these lease terminations. We expect to waste these 5 early acquisition properties and redeploy nan proceeds into experiential assets.

Percentage rents for nan 4th totaled $5 cardinal aliases $6.9 cardinal successful nan anterior year. The alteration versus anterior twelvemonth chiefly related to little percent rent from an early acquisition tenant based connected our restructured lease, which has higher guidelines rents successful 2022. Percentage rents exceeded nan midpoint of our guidance by $1.4 cardinal owed to outperformance crossed respective of our experiential spot types.

G&A disbursal was correct successful statement pinch expectations, expanding by $2.6 cardinal versus anterior year, chiefly to an summation successful payroll and use costs, including banal assistance amortization arsenic good arsenic an summation successful recreation expenses and master fees.

During nan quarter, we've reassessed nan holding play of nan 5 KinderCare properties taxable to nan lease terminations arsenic good arsenic 2 of nan Regal theatre properties that were taxable to a anterior mobility to cull leases. As a consequence of this reassessment, we recognized a full of $23 cardinal successful impairment charges connected these properties.

These impairment charges were excluded from FFO arsenic adjusted and AFFO. Lastly, FFO arsenic adjusted from associated ventures decreased by $1.2 cardinal versus anterior twelvemonth to a nonaccomplishment of $1.7 cardinal owed to nan truth that we person much JVs versus nan anterior twelvemonth and nan seasonal quality of these businesses.

Despite nan summation successful nonaccomplishment versus nan anterior year, nan capacity of our JVs was amended than anticipated successful nan midpoint of our anterior guidance.

Shifting to afloat twelvemonth results. FFO arsenic adjusted was $4.69 per stock versus $3.09 successful nan anterior year, and AFFO was $4.89 per stock compared to $3.26 successful nan anterior year. Both measures being up astir 50% versus nan anterior twelvemonth show our beardown betterment from nan effect of nan COVID-19 pandemic.

In 2022, afloat year, we collected astir $18 cardinal successful deferred rent and liking from cash-basis customers that was recorded arsenic income and astir $25 cardinal from accrual ground customers that reduced receivables.

In total, for 2022, we generated operating rate travel successful excess of dividends of complete $175 million. Turning to nan adjacent slide, I'll reappraisal immoderate of nan company's cardinal in installments ratios. As you tin see, our sum ratios proceed to beryllium beardown pinch fixed complaint sum of 3.4x, and some liking and indebtedness work sum ratio is astatine 4x.

Our nett indebtedness to adjusted EBITDA was 5x, and our nett indebtedness to gross assets was 39% connected a book ground astatine December 31. Lastly, our communal dividend continues to beryllium very good covered pinch an AFFO payout ratio for nan 4th fourth of 65%. Now let's move to our equilibrium sheet, which is successful awesome shape. At 4th end, we had consolidated indebtedness of $2.8 billion, each of which is either fixed-rate indebtedness aliases indebtedness that has been fixed done liking complaint swaps pinch a blended coupon of astir 4.3%.

Additionally, our weighted mean consolidated indebtedness maturity is 5.3 years pinch nary scheduled indebtedness maturities until 2024. We had astir $108 cardinal of rate connected manus astatine 4th extremity and nary equilibrium drawn connected our $1 cardinal revolver.

We are not providing 2023 guidance for FFO arsenic adjusted connected this telephone owed to nan uncertainty related to Regal's bankruptcy. We will supply this guidance consequent to nan solution of these proceedings. As we person antecedently discussed, fixed our existent costs of superior successful nan existent inflationary environment, we person consciously decided to limit our near-term finance spending and money these investments chiefly from rate connected hand, rate from operations and borrowings nether our unsecured revolving in installments facility.

Accordingly, our 2023 finance spending guidance is $200 cardinal to $300 million, of which astir $175 cardinal relates to commitments connected closed experiential improvement and redevelopment projects, and we do not expect nan request to raise further superior to money these amounts.

Our 2023 guidance for percent rent is $8.5 cardinal to $12.5 million, and our G&A guidance is $54 cardinal to $57 million. Guidance specifications tin beryllium recovered connected Page 24 of our supplemental.

Now pinch that, I'll move it backmost complete to Greg for his closing remarks.

Greg Silvers

Thank you, Mark. Outstanding maturation successful FFO, beardown investments successful pipeline and continuing user resilience were conscionable a fewer of nan cardinal themes of our telephone today. And I wanted to return a infinitesimal and admit and convey our full squad of associates that activity truthful difficult to nutrient these results. We return pridefulness successful driving worth for our shareholders, and we look guardant to continuing our advancement successful 2023.

With that, Chris, why don't we unfastened it up for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from nan statement of Joshua Dennerlein pinch BofA Securities.

Joshua Dennerlein

Yes. I conjecture I was conscionable looking for a small spot much colour connected -- successful nan property release, you mentioned Regal initially, I guess, revenge a mobility to cull 3 leases for -- aliases cull leases for 3 properties and past decided not to proceed pinch those.

Is location immoderate benignant of further colour you tin supply connected that? And --

Greg Silvers

Yes. Josh, it's Greg. I wouldn't publication successful very overmuch into that. I mean it's a very fluid situation. If you look astatine nan measurement nan bankruptcy process, there's been properties moved successful and retired of motions. So I deliberation it's -- for illustration I said, I don't cognize that that's reference into that is affirmative aliases negative.

It's conscionable a batch of strategies that spell connected pinch that. But Greg, possibly you want to adhd much to that?

Greg Zimmerman

No. I deliberation that summarizes it.

Joshua Dennerlein

Got it. And past possibly 1 much connected Regal. I conjecture if you were to get assets back, I guess, really are you reasoning astir what you would do pinch those assets? Is it your penchant to benignant of waste them, redevelop nan properties aliases conscionable proceed operating them arsenic theaters pinch a different operator?

Greg Silvers

Again, it's astir apt 1 of very spot specific. If location are opportunities, immoderate benignant of drives value, nan champion value. So we'll research each of that. We've talked openly astir nan truth that we've created optionality that if we want to person these properties managed that Greg and his squad person created that optionality for us.

I'm sure, depending upon wherever nan spot is located and its replacement uses, we would research sale. So until we get a bully consciousness of not only circumstantial properties, but really galore it's really difficult to remark connected nan assortment of benignant of alternatives we would pursue. But Greg?

Greg Zimmerman

Josh, I deliberation coming retired of nan pandemic, we executed connected each 3 strategies. We released immoderate theaters. We sold immoderate theaters. And then, arsenic Greg mentioned, we managed 2 theaters. So we person each those options disposable successful this lawsuit arsenic well.

Operator

This mobility comes from Rob Stevenson of Janney Montgomery Scott.

Rob Stevenson

Just a follow-up connected nan past question, Greg. Outside of AMC and Regal, really would you qualify nan wellness and nan description plans complete nan adjacent mates of years of nan smaller location operators? Are they going to beryllium successful a position to beryllium nan retenant connected immoderate ineligible aliases whoever gives backmost complete nan adjacent fewer years? Or do they person their ain problems and they're going to -- nan immense mostly of these theaters are going to person to beryllium redeveloped arsenic thing else?

Greg Silvers

Again, and I'll fto Greg jump in. But I deliberation nan wellness mostly of nan nonpublic tenants were substantially helped by authorities assistance arsenic we saw coming into and retired of nan program. So I think, again, arsenic we've ever said, bully theaters will find a home, and they will person group who are very willing successful either operating aliases leasing those I don't deliberation it's going to beryllium for a deficiency of opportunities that we have.

I deliberation what's bully for nan manufacture is I don't deliberation you're going to spot a batch of caller ground-up growth. So really, what we're talking astir is group will beryllium looking for opportunities that tin beryllium very quickly taken complete and brought backmost into accumulation relative. But Greg?

Greg Zimmerman

Yes, I deliberation that's accurate. And Rob, besides I would opportunity our theatre sum is 1.4x. And we do person wrong that sum a number of location theaters that proceed to execute good and well.

Rob Stevenson

Okay. And past conscionable turning to nan acquisition side. What is nan marketplace these days for decently leased acquisition assets? Is location -- nan headdress rates, if you wanted to waste much of that portfolio than conscionable nan 5 that you're getting backmost from KinderCare, is that disposable to you astatine a reasonable pricing? Is that pricing not really location yet coming and it's amended to clasp these? I cognize that nan acquisition has been reduced for you guys for a while. But really does that timeframe work? And what are you guys reasoning astir there?

Greg Silvers

Yes. I deliberation it's nan approach. And again, I'll fto Greg Zimmerman contact. I deliberation nan marketplace is still alternatively bully if you're wanting to waste one-off assets. This is simply a marketplace that still is sought aft by nan 1031 buyer. So there's a batch lot of liking there.

I deliberation arsenic you commencement to benignant of put ample portfolios together, it's really astir nan indebtedness markets and nan readiness of debt. So I deliberation astatine that point, it benignant of trades not that vastly different from a batch of nett lease assets and therefore, conscionable benignant of uncovering nan correct opportunity.

But I deliberation it's still, arsenic evidenced by nan performance, a very strong, resilient plus people that there's still bully request for.

Greg Zimmerman

I agree. And nan different point I would say, Rob, is that these buildings are beautiful easy utilized for other, I'll telephone it, work unit use, beryllium it a aesculapian usage aliases dental office. So location are different opportunities beyond conscionable education.

Rob Stevenson

Okay. And past 1 past 1 for Mark. What is your champion conjecture arsenic to wherever AMC will spell disconnected rate ground accounting, assuming nary awesome issues going forward? And past really agelong aft Regal would exit bankruptcy, would it beryllium reasonable for them to spell disconnected rate ground accounting, fixed what you cognize today?

Mark Peterson

Really, we want to spot continued stabilization of nan container office, frankly, and stabilization of nan tenant credit. So we don't really put a timeframe connected that. We're going to beryllium blimpish pinch respect to that. Frankly, we're getting paid successful recognizing gross likewise to what we'd beryllium recognizing otherwise.

And we're not successful a hurry to put a full batch of straight-line rent connected nan books, which would beryllium nan consequence erstwhile we put them backmost from rate ground to accrual. So I don't really person a timeframe, but we want to proceed to monitor, for illustration I said, container agency betterment and surely tenant capacity earlier we make that decision.

Operator

This adjacent mobility comes from Ki Bin Kim of Truist.

Ki Bin Kim

Going backmost to nan theatre business, nan 1.4x coverage, these operators evidently person to salary themselves, salary G&A, salary nan slope back. What is, from their perspective, a patient level of sum because it astir apt has to beryllium much than 1.4? And if you tin break astatine that pinch what you deliberation aliases what nan manufacture thinks 2023 container agency income will beryllium and wherever that sum mightiness drift up to?

Greg Silvers

Again, Ki Bin, I deliberation nan first constituent is, we operated for 20 years, astir apt successful a scope of 1.6 to 1.8 arsenic a theatre sum metric. So I deliberation benignant of bracketing astir that benignant of 1.7 benignant of midpoint has been deemed to beryllium rather healthy.

I deliberation -- and I'll fto Greg remark connected this. I deliberation that you're seeing benignant of each complete nan committee benignant of expectations connected 2023 because candidly, nan movie slate is still coming together, and everybody has benignant of circulated astir what really drives nan container agency number is nan number of wide merchandise films.

And truthful I deliberation that's benignant of -- I deliberation we consciousness for illustration we're going successful nan correct direction. I deliberation pinch what's successful accumulation successful 2020 -- headed towards 2024 arsenic benignant of nan first existent benignant of stabilization number that I deliberation -- and I'll speak and past Greg, that for 2024, we're seeing person to a return to a $9 cardinal type of number.

What it gets location this twelvemonth betwixt past twelvemonth and that will beryllium really astir films and do they move into that -- into '24 aliases '23, truthful there's still a batch of cloudiness arsenic we beryllium present successful nan first 4th arsenic to wherever that ends, but nan trajectory of wherever we're going based upon what nan studios are saying correct now is very affirmative toward a benignant of a stabilization.

Now moreover astatine $9 cardinal and above, that's still, telephone it, 20% down. But successful that situation of 20% down, we deliberation we still person a very patient business. But Greg?

Greg Zimmerman

Yes, Ki Bin, nan different point I would opportunity is benignant of Greg is perfectly right. The number of awesome releases is of captious value because awesome releases mostly mean astir $70 cardinal a title, but we besides request smaller films to tie further postulation to scope audiences that whitethorn person stopped coming to nan theater.

The ramp-up accumulation is continuing. I deliberation studios are knowing that they're going to make money successful theatrical. I'll springiness you an example. Magic Mike's past stance was greenlit for HBO Max pinch nan alteration successful activity astatine Warner Bros., they've decided to merchandise it theatrically and it's made astir $20 million.

So we're benignant of getting backmost to wherever we were successful 2019 pinch theatrical bleeding into streaming and studios utilizing elastic windows. So each that is pointing successful nan correct guidance arsenic we heal nan theatrical business.

Ki Bin Kim

And erstwhile you comparison Regal's rent sum ratios versus AMC, I deliberation past clip we spoke, it was beautiful similar. Can you conscionable punctual america if that's nan case? And erstwhile you look astatine your Regal locations, I'm conscionable trying to amended bracket retired nan downside, really galore bully competing operators are wrong for illustration a reasonable radius of nan Regal locations? I'm conscionable trying to understand if different competitor moreover you return nan lease?

Greg Silvers

Yes. I mean, again, I deliberation location is -- there's nary awesome -- not immense disparity arsenic acold arsenic benignant of nan sum idea. And I think, again, arsenic we talked astir earlier, it's genuinely benignant of marketplace by market.

And I deliberation there's -- location will beryllium request for a important number of these assets. We don't person immoderate uncertainty of that. So I deliberation it's -- again, it's going to beryllium benignant of marketplace by marketplace because erstwhile you person 57 assets, you can't overgarment benignant of pinch a wide brush. But Greg?

Greg Zimmerman

Yes. That covers it. Yes.

Operator

This mobility comes from nan statement of R.J. Milligan of Raymond James.

R.J. Milligan

I was conscionable funny if you tin springiness america immoderate denotation aliases ballpark arsenic to erstwhile you expect nan negotiations pinch Regal to beryllium concluded?

Greg Silvers

That would beryllium a awesome idea, R.J. And if you had immoderate penetration into that, we would admit it. As -- again, that's -- it's not that we don't want this process to end, but let's conscionable look astatine benignant of nan wide timeframe.

When they entered bankruptcy successful September, they said they would beryllium retired astatine nan extremity of February. I deliberation their latest scheme says now they're going to beryllium retired successful June. So again, there's conscionable a batch of dynamics that spell into it. If you deliberation astir what's going connected successful that, not only do they person landlords they're negotiating but they're besides negotiating pinch existing lenders wherever they revenge plans to person astir $3 cardinal to $3.5 cardinal worthy of indebtedness into equity.

And truthful there's a batch of moving parts that they are continuing to activity through. I deliberation location are times that -- again, I conscionable want group successful nan -- for transparency, moreover if we -- and we haven't, but let's conscionable opportunity successful a period from now, we discuss a deal, it whitethorn beryllium until nan extremity of nan bankruptcy earlier we tin denote that woody because of they whitethorn want america to support that that accusation confidential and not stock what we are negotiating -- what we've negotiated pinch comparative to different landlords.

So R.J., I admit nan frustration. I admit nan desire to want to benignant of dimensionalize benignant of some nan timeframe and nan impact, it's conscionable very difficult for america to do that astatine this time.

Mark Peterson

And while we'd for illustration to clear nan uncertainty, while we wait, we're getting paid 100% rent and 100% deferral payments. So we're we're doing good arsenic we wait, but we would for illustration to resoluteness it.

R.J. Milligan

Okay. That makes sense. And past my 2nd mobility is for nan 5 puerility acquisition centers that are closing, is location thing circumstantial astir those arsenic to why they're closing? And is that immoderate denotation successful position of nan capacity of nan wide puerility acquisition portfolio?

Greg Silvers

And I'll fto Greg elaborate connected this. But again, I don't cognize that there's thing -- I'm judge there's immoderate capacity issues, but you conscionable went done a awesome acquisition M&A combination. So I'm besides -- there's astir apt -- there's performance, there's rationalization, there's a batch of things that I deliberation spell into that mindset.

Again, I deliberation we're very pleased pinch having KinderCare, arsenic Greg mentioned, arsenic a in installments upgrade, a nationalist institution truthful that we'll beryllium capable to person greater visibility to that. We -- arsenic portion of benignant of erstwhile we did this 4 aliases 5 years ago, we person a rent reset that we deliberation will retrieve a important information of that backmost and it besides gives america assets that free up to waste to recycle capital.

So I don't deliberation there's immoderate read-through connected nan benignant of wide wellness of nan early ed because arsenic Greg said about, actually, we had attendance up, we had revenues up. So these were beardown -- we had beardown capacity successful nan portfolio.

Mark Peterson

Interestingly, by nan clip you person nan rent reset, which we deliberation will offset nan yearly decrease, positive adhd successful nan truth that we sewage $7 million, positive we will waste these 5 properties successful time. By nan clip we redeploy that, overall, erstwhile you look astatine it and measurement back, astir apt travel up amended than we were earlier successful position of NOI, though it will return a small clip to get there.

Operator

This adjacent mobility comes from nan statement of Aditi Balachandran of RBC Capital Markets.

Aditi Balachandran

Just 1 speedy mobility from me. Going connected pinch KinderCare, are location immoderate different tenants pinch akin lease termination rents successful KinderCare?

A –Greg Silvers

Not really. We don’t – I mean, remember, this was negotiated erstwhile we – this is astir apt – Greg, you helped maine 5, 6 years ago, erstwhile we did nan Children’s Learning Adventure moving into this – nan caller usability anterior to KinderCare?

A –Greg Zimmerman

Crème de la Crème.

A –Greg Silvers

Crème de la Crème to do that. But from a wide speed, termination authorities are not thing that we person successful our portfolio.

Operator

This adjacent mobility comes from nan statement of John Massocca of Ladenburg Thalmann.

John Massocca

Turning to nan 4Q finance arsenic you deliberation astir nan finance successful and Gravity House, conscionable fixed really those were structured, what do you -- what are possibly conscionable nan unsmooth LTVs connected nan owe investments you're doing successful benignant of nan experiential lodging space?

Greg Silvers

Again, I'll fto Greg, but I deliberation it's person to 60%-65%, and truthful they're beautiful comparative debased LTVs and successful a batch of these scenarios and Greg tin speak to this. We besides person conversion authorities that we tin astatine immoderate constituent successful clip successful nan future, person these to semipermanent thesis. So we are creating what we deliberation is bully optionality for america to power nan spot agelong term, but different than a improvement lease successful a owe structure, you summation contiguous income from those owe those notes. And past if we sphere nan correct to person those successful nan future, it gives america a small spot amended benignant of income and visibility and deployment and impact.

John Massocca

Okay. That's very helpful. And past going backmost to Regal. If you deliberation astir nan $87 cardinal of benignant of deferred rent that's owned by nan tenant, if you do get assets handed backmost successful bankruptcy, should we expect that magnitude to beryllium reduced benignant of connected a one-for-one ground astir to nan magnitude of leases that are rejected, i.e., ex percent of leases get rejected, it will beryllium that deferral magnitude would beryllium reduced by a akin percentage?

Greg Silvers

No, because it's really driven by what nan rent is connected nan various benignant of properties that get nan leases. And truthful they're not -- each leases are not $87 cardinal divided by 57, and they're each -- truthful it would beryllium very overmuch benignant of driven by nan income associated to that circumstantial lease.

John Massocca

Okay. So it's going to beryllium very bespoke to nan assets that either do aliases don't get --

Greg Silvers

Yes. Yes.

John Massocca

Okay. each right. That's it for me. And congrats immoderate connected nan different extremity of nan line.

Operator

This comes from nan statement of Ki Bin Kim of Truist.

Ki Bin Kim

Just a speedy one. So excluding nan theatre tenancy, really are you reasoning astir bad indebtedness for nan remainder of nan portfolio successful 2023?

Mark Peterson

Yes. We put successful benignant of a wide 1% reserve, frankly, pinch nan sum being astatine 2.7, we consciousness beautiful bully astir that higher than it was successful 2019, but we ever put immoderate reserves successful for bad debt.

Ki Bin Kim

And immoderate benignant of much noticeable benignant of concentrations wrong that bad indebtedness aliases is it wide --

Mark Peterson

Well, it's benignant of a wide reserve because, frankly, we really don't spot galore issues astatine each wrong our non-theater portfolio.

Greg Silvers

So it's conscionable a general, it's not benignant of specific, Ki Bin.

Ki Bin Kim

Okay. Great. And past conscionable 1 much mobility connected owe loans that you make. Are you -- is it each existent correct now, immoderate benignant of aging that's noticeable?

Greg Silvers

No. None. All current.

Operator

That concludes our Q&A conception for this presentation. I'll move it backmost complete to Greg Silvers for immoderate further remarks.

Greg Silvers

I conscionable want to opportunity we -- convey you for everyone's information today. We look guardant to talking to you soon. And again, acknowledgment to John for reminding america that we are nan location of Super Bowl Champion, truthful we greatly admit that arsenic well. So thanks, everyone. Have a awesome day.

Greg Zimmerman

Thanks.

Operator

And thanks, again. This does reason nan program. You whitethorn now disconnect.