EPR Properties (NYSE:EPR) Q1 2025 Earnings Call Transcript

EPR Properties (NYSE:EPR) Q1 2025 Earnings Call Transcript May 8, 2025

Operator: Hello and welcome to the EPR Properties Q1 2025 Earnings Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications.

Brian Moriarty: Great. Thank you. Thanks for joining us today for our first quarter 2025 earnings call and webcast. Participants on today’s call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. I’ll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995 identified by such words as will be, intent, continue, believe, may, expect, hope, anticipate or other comparable terms. The company’s actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company’s SEC filings, including the company’s reports on Form 10-K and 10-Q.

Additionally, this call will contain references to certain non-GAAP measures which we believe are useful in evaluating the company’s performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today’s earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today’s earnings release, supplemental and earnings call presentation are all available on the Investor Center page of the company’s website, www.eprkc.com. Now, I’ll turn the call over to Greg Silvers.

Greg Silvers: Thank you, Brian. Good morning everyone and thank you for joining us on today’s first quarter 2025 earnings call and webcast. I am happy to report that our first quarter results reflect continued strength in our portfolio, with top line revenue up 4.7%, and FFO as adjusted per share up 5.3% year-over-year. Additionally, we are pleased to announce that we are increasing our 2025 earnings guidance. During the quarter we made progress with our investment pipeline, deploying capital into accretive opportunities that support our long-term growth strategy. As part of our investment spending during the quarter and subsequent to quarter-end, we are introducing 2 new experiential asset types to our portfolio; a construction theme of attraction and a private golf club [ph] with expansive amenities.

We are delighted to add these properties to our portfolio as they reflect the attributes we seek in our experiential investments. While we remain prudent in our investment spending given the current cost-of-capital, we are encouraged by our ability to continue to find attractive investments. We are also — we also advanced our capital re-sizing strategy focused on the sales of theater and education assets, and accretively redeploying this capital into target experiential properties. This strategy remains a top priority for us as we continue to refine our portfolio with the goal of further expanding our experiential portfolio across high quality products. Turning to an overview of our product portfolio. Our first order consolidated coverage remains at 2.0 [ph] which is consistent with reported coverage on our year-end call.

We are pleased with the momentum and resilience we’re seeing at the box office. Thus far we’ve seen success around multiple genres, including original content, as most recently evidenced by the performance of Sinners. Franchise films, including Captain America: Brave New World, and Mufasa: The Lion King, and animated features like Dog Man and Moana 2. The upcoming jump slate [ph] is strong, and we remain optimistic about seeing continued solid performance in the theatrical exhibition. Our ski properties also delivered solid results supported by robust season past sales and favorable weather conditions. As we’ve discussed previously, our snow-making capabilities at these properties help to mitigate weather risk. While our eat & play sector experienced some year-over-year declines, our coverage in the space remains healthy, and we’re confident about the sector’s resilience.

Lastly, amidst [ph] the ongoing uncertainty we wanted to highlight the long-term resiliency of experiential spending in many of these sectors that we invest in. As is highlighted on the chart, spending on these experiences has consistently grown over the last 25 years throughout macro cycles. Additionally, the data illustrates that these sectors are resilient during challenging economic periods and have the potential to exhibit robust recoveries. We believe that consumers often seek away from home entertainment and leisure options, even during more challenging period due to a mix of psychological, behavioral and economic factors. These types of experiences offer affordable escapism by providing value-oriented entertainment and a temporary escape.

History suggests there is also some substitution effect whereby consumers may drain down rather than opt out, opting for local, more budget-friendly experiences instead of expensive vacations or high-end purchases. This trade down effect can make our venues more appealing during downturns. With that, I’ll turn it over to Greg Zimmerman to go into the business in greater detail.

Greg Zimmerman: Thanks, Greg. At the end of the quarter, our total investments were approximately $6.8 billion, with 331 properties that are 99% leased or operated, excluding vacant properties we intend to sell. During the quarter, our investment spending was $37.7 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 276 properties with 51 operators, and accounts for 94% of our total investments, or approximately $6.4 billion. And at the end of the quarter, excluding the vacant properties we intend to sell, was 99% leased or operated. Our education portfolio comprises 55 properties with 5 operators, and at the end of the quarter was 100% leased. Turning to coverage. The most recent data provided is based on a March trailing 12-month period.

Overall portfolio coverage remained strong at 2 times, the same as last quarter. Turning now to the operating status of our tenants. The rebound in North American box office continues. Q1 box office was $1.4 billion, down to 11.6% compared to Q1 2024, largely because of the significant underperformance by Snow White. We’ve seen a quick rebound with the outstanding performance of several films in Q2-to-date. Q2 box office through this week was $11 billion, which brings year-to-date box office to $2.5 billion, a 17.1% increase over the same period. A Minecraft Movie opened to $163 million, both the largest opening in 2025, and the largest opening weekend ever for a video game movie. To-date, Minecraft has grossed $398 million. Akin to [ph] Barbie, Minecraft was a cultural phenomenon fueled by consumer seeing the movies several times interacting with the screen.

Beyond Minecraft, the well-reviewed genre bending [ph] horror film, Sinners, has grossed $180 million to date, and the faith based The King of Kings has grossed $58 million. Last week, Thunderbolts*, the latest instalment of the Marvel Cinematic Universe, opened to $74 million. With these strong early Q2 performances as of the first week of May, we are back on-track for our projected year-to-date box office gross. As history has shown, when product is flowing, the box office is resilient and when there is a consistent flow of good product, consumers are in the habit of going to multiple movies. For the remainder of Q2, beyond Minecraft, 8 titles are projected to gross over $100 million, including 4 projected to gross over $175 million; Thunderbolts*, Lilo & Stitch, Mission Impossible: The Final Reckoning, and How To Train Your Dragon.

The slate for the remainder of the year is also strong, including The Fantastic Four: First Steps, Superman, Jurassic World Rebirth, and Avataar: Fire and Ash. Box office gross ties directly to the number of titles released, particularly wide releases from the 9 major Hollywood Studios, which typically generate around two-thirds of the North American box office. As of May, we anticipate 2025 will have 78 major studio releases and 60 smaller studio releases. At this point in 2024, there were 64 major studio releases on the counter. The 78 major studio releases currently scheduled for 2025 are forecasted to gross $800 million more than the major studio releases scheduled at this point in 2024. Our estimate of North American box office for calendar year 2025 remains between $9.3billion and $9.7 billion.

Another important element supporting the health of exhibitor probability is the ongoing expansion of food and beverage offerings. These expanded offerings are driving increased consumer spending, revenue per patron, and levels of profitability per patron. Based on AMC and Cinemark public filings from 2019 through 2024, per patron ticket prices increased by approximately 26% while F&B spending per patron increased by approximately 60%. Ticket margin is around 46%, while FMB margin is around 82%. This notable increase in higher margin F&B spending meaningfully boosts gross profit per patron, and has a positive impact on the bottom line. When adjusting for the current per patron spending mix, we estimate that North American box office gross of around $9.5 billion today, will generate rent coverage levels in our portfolio equal to those generated at an $11.3 billion box office in 2019.

While box office metrics obviously will remain an important benchmark, the industry story has evolved and strong per patron profitability now plays an important role in sustaining operator health. We believe that returning to 2019 box office levels is not necessary to maintain solid rent coverage or for the industry to remain financial healthy. Turning now to an update on our other major customer groups. Despite continuing pressure on operating expenses and in select cases, attendance and revenue declines, we saw good results across our drive-to-value oriented destinations. Our Eastern ski areas benefited from good snow year, and for the season, both Q1 and Q1 trailing 12-month revenue and EBITDARM were up across the ski portfolio over last year’s season.

Andretti Karting is under construction in Kansas City, Oklahoma City and Schaumburg with opening scheduled for mid-2025 and early-2026. Our eat & play coverage remain strong and above pre-COVID levels by Q1 trailing 12-month revenue and EBITDARM were both down over the same period in 2024. Many of our attractions closed for the season in Q1. The 100,000-square-foot Indoor Waterpark addition at the Bavarian Inn in Frankenmuth, Michigan opened in Q1. Our iconic Hotel de Glace at Valcartier celebrated its 25th anniversary with its usual strong performance. Santa Monica Pier was adversely impacted by the Southern California wildfires, including being shut down for several days; some road closures are ongoing. We’re very pleased with the strong performance of our fitness and wellness investments.

The Springs Resort in Pagosa Springs opened its $90 million expansion in early April to good reviews. Ramp up continues at our Margarita [ph] Hot Springs Resort. Across our fitness and wellness portfolio, we saw increases in both, revenue and EBITDARM in the trailing 12-months through March 2025 over the same period in 2024. Our education portfolio continues to perform well. Our customers trailing 12-months revenue across the portfolio for 2024 was up, while EBITDARM over the same period decreased, driven largely by increased operating costs for one operator. Our investment spending for Q1 was $37.7 million, which included funding for experiential projects which have closed but are not yet opened. During the quarter, we acquired Diggerland USA in West Berlin, New Jersey, 20 miles east of Philadelphia for $14.3 million.

Diggerland is the only construction theme attraction waterpark in the country, and it’s our second investment with RAM [ph], further diversifying our tenant base. Subsequent to the end of the quarter, we made 2 additional investments. We made our first event investment in the traditional box space acquiring land for $1.2 million and providing $5.9 million in mortgage financing secured by improvements to Evergreen Partners for an existing private club in Georgia. We spent a lot of time analysing traditional golf while building deep relationships, and we are delighted to announce our foray into what we think is an exciting growth opportunity in a resilient space with a growing operator. We also acquired our second Penn Stack [ph] eat & play venue in Northern Virginia for $1.6 million, with a commitment to provide built-to-suit financing upto $19 million.

This project is expected to open in 2026. Penn Stack [ph] features bowling, food and beverage and redemption games. We continue to see high quality opportunities for both, acquisition and built-to-suit development in our target experiential categories. Given our cost-of-capital, we will continue to maintain discipline and to fund those investments primarily from cash-on-hand, cash from operations, proceed from dispositions, and with the borrowing availability under unsecured revolving credit facility. We’re maintaining our investment spending guidance for funds to be employed in 2025 in the range of $200 million to $300 million. We have committed approximately $148 million for experiential development and redevelopment projects that have not yet closed but are not yet funded, to be deployed over the next few years.

We anticipate approximately $87 million of $148 million will be deployed in 2025 which is included at the midpoint of our 2025 guidance range. We continue to execute on our strategy to focus our portfolio on diversified experiential assets. To that end in Q1 we sold 10 leased early education centers, demonstrating our ability to strategically monetize our education portfolio. We also sold a vacant theater, 2 operating theaters and 1 vacant early childhood education center. Net proceeds for these transactions totaled $70.8 million, and we recognized a gain of $9.4 million. Finally, we received $8.1 million in net proceeds for a payment full of 2 mortgages secured by 2 additional early childhood education centers. The activity in the education portfolio was anchored by the sale of a portfolio of 9 leased early childhood education centers to an investor at $7.4 million [ph] cap-rate, demonstrating the high quality and value of our education portfolio.

For the other 3 operating early childhood education assets, the existing operating purchase and/or paid off mortgage financing had a blended rate of around 8.3%. In the past four years, we have sold 27 theaters. We only had 3 vacant theaters, 2 of which are under contract. We have no vacant early childhood education centers. As we noted on our year-end call, we also have signed purchase and sale agreement to sell 2 theater properties to a smaller operator that currently leases both locations, although there can be no assurance we continue to anticipate this sale will occur by June 30. We are revising our 2025 disposition guidance to the range of $80 million from the range of — $80 million, excuse me, to the range of $80 million to $120 million from a range of $25 million to $75 million [ph].

I now turn it over the Mark for a discussion of financials.

Mark Peterson: Thank you, Greg. Today I will discuss our financial performance for the first quarter, provide an update on our balance sheet, and close with an update on 2025 guidance. FFOs adjusted for the quarter was $1.19 per share versus $1.13 in the prior year, an increase of over 5%. Additionally, AFFO for the quarter was $1.21 per share compared to $1.12 in the prior year, an increase of 8%. Before I walk through the key variance, I want to go over 2 gains recognized during the quarter. As Greg discussed, during the quarter we continue to make progress reducing our investments in theater and education properties, and recycling those proceeds into other experiential assets. Net proceeds from dispositions totaled $78.9 million, and we recognized a net gain on sale of $9.4 million.

We also recognizing a net benefit for credit losses of $652,000. Note that both of these gains are excluded from FFOs adjusted and AFFO. Now, moving to the key variances. Total revenue for the quarter was $175 million versus $167.2 million in the prior year. Within total revenue, rental revenue increased $4.1 million versus prior year, mostly due to the impact of investment spending and higher percentage rents. Percentage rents for the quarter were $3.3 million versus $1.9 million in the prior year, and the increase was due primarily to $1.1 million recognized from one early childhood education center tenant. The increase in mortgage and other financing income of $4.1 million was due to additional investments in mortgage notes over the past year, as well as $1.8 million of participating interest income related to ski property.

I’d like to note that both, the $1.1 million percentage rent [ph], and $1.8 million of participating interest income related to prior periods. The calculations for some of these amounts were under review with our customers and agreement was reached as per the amounts during the first quarter. Later, I will discuss how this impacts our 2025 guidance. Both other income and other expense related primarily to our consolidated operating properties, including the Kartrite Hotel and Indoor Waterpark and our operating theaters. As Greg discussed during the quarter, we sold 2 operating theaters and currently have 4 operating theaters remaining. The first quarter was off season for our 2 remaining unconsolidated RV part [ph] joint ventures that had a carrying value a quarter of $11.4 million.

Interest expense, net for the quarter increased by $1.4 million compared to the previous year due to an increase in borrowings under our unsecured revolving credit facility which had no balance in the prior year. Turning to the next slide, I will review some of the company’s key credit ratios. As you can see, our coverage ratios continue to be strong with fixed charge coverage at 3.2 times, and both interest and debt service coverage ratios at 3.8 times. Our net debt to adjusted EBITDAre was 5.3 times for the quarter. If you adjust this ratio to include the annualization of investments placed in service acquired or disposed of during the quarter, and the annual utilization of percentage rent and participating interest, as well as other items; this ratio was 5.1 times at quarter-end which is at the low end of our targeted range.

Additionally, our net debt to gross assets was 39% on a book basis at quarter-end, and our common dividend continues to be very well covered with an AFFO payout ratio of 71% for the first quarter. Now let’s move to our balance sheet which is in great shape. At quarter-end, we had consolidated debt at $2.8 billion, of which $2.7 billion is either fixed rate debt or debt that has been fixed or interest rate swaps with an overall blended coupon of approximately 4.4%. Our liquidity position remained strong with $20.6 million of cash-on-hand at quarter-end and $105 million drawn under our $1 billion revolver. Subsequent to quarter-end, we repaid $300 million in senior unsecured notes at maturity using funds available under our revolver. We have no other debt maturities for 2025.

Our strong liquidity position provides us great flexibility which is particularly important given the recent market volatility. We are increasing our 2025 FFOs adjusted per share guidance to a range of $5 to $5.16 from a range of $4.94 to $5.14; representing an increase over the prior year of 4.3% at the midpoint [ph]. As we have discussed previously, given our current cost of capital, we are limiting our near-term investment spending. We are confirming our 2025 investment spending guidance of $200 million to $300 million. We are increasing guidance for disposition proceeds for 2025 to a range of $80 million to $120 million from a range of $25 million to $75 million. On the next slide, we are increasing our percentage rent and participant interest income to a range of $21.5 million to $25.5 million from a range of $18 million to $22 million.

This increase is primarily related to the $2.9 million in prior period income recognized in the first quarter that I discussed previously, as well as additional amounts expected related to the current year. We are increasing our G&A expense to a range of $53 million to $56 million from a range of $52 million to $55 million, with the largest increase at the midpoint related to non-cash stock grant amortization. We are confirming the guidance for our consolidated operating properties which is provided by giving a range for other income and other expense. One final comment regarding our FFOs adjusted per share guidance. We note that given the fact that our expected percentage rents and participating interest income continues to be weighted to the second half of the year, as does the performance of our operating properties due to seasonality.

FFOs adjusted per share is expected to be significantly higher in the second half of the year versus the first half. Guidance details can be found on Page 23 of our supplemental. Finally, we are pleased to have increased our common — our monthly common dividend by 3.5% to $354 [ph] per share annualized, which began with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2025 dividend to be well covered with an AFFO per share payout — payout continuing to be about 70% based on the midpoint of guidance. Now with that, I’ll turn it back over to Greg for his closing remarks.

Greg Silvers: Thanks, Mark. As today’s results indicate, our portfolio of experiential properties continues to deliver quality results. I also wanted to comment on recent announcements about possible tariffs impacting the film industry. At this point, there is significant uncertainty about the viability, scope and timing to implement such proposal. However, both sides of the Bay [ph] have a stated objective of producing a robust slate of films that drive a successful film exhibition industry. We will closely monitor these developments but we take comfort at the entire 2025 slate, and most, if not all, of the 2026 slate is already in post-production which we believe should limit any near-term impact. With that, why don’t I open it up for questions. Alice [ph]?

Q&A Session

Operator: [Operator Instructions] Our first question will come from Anthony Paolone with JPMorgan.

Anthony Paolone: My first question is on the golf investment. Can you maybe spend a minute and give us a little bit more color around how you see the yields, deal structure? And just maybe a little bit more on the first transaction here, in terms of, like — what equity is behind it? Who the operator is, experience, that sort of thing.

Greg Silvers: I think and then I’ll let Greg Zimmerman add onto this. I think what we’ve done is done a deep dive in this Tony, and there is nearly 2,000 courses across the U.S. have been eliminated over the last 5 years. So there clearly a scarcity has been introduced into it. This that we’re involved in is a private club; so the actual membership and fees and everything tied to the land and run with the home ownership. So we think it’s a very, very solid and reliable income flow. But we also think there are good opportunities that are going to continue to develop in this scarce environment. But, Greg?

Greg Zimmerman: Yes, Tony. I would say this is a private club, we’re also monitoring daily feed growth [ph] which we would have an interest in as well. I think the deal structure we will see is flexible like our traditional deal structures; we’ll either approach this as a sales leaseback. Well, in this case, it was mortgage financing. The operator is a growing operator, they have a couple of clubs, and a deep bench of talent; so we believe this an opportunity to grow them. And lastly, I will say, as we always do, we spent a lot of time over the last 5 years understanding the industry and developing deep roots. I think as we’ve said repeatedly over the last year or so, we really believe in fitness and wellness as a growth opportunity in this portfolio, and that helps us round down our confidence [ph].

Anthony Paolone: Okay, thanks for that. And then, just — my second one’s really a 2-parter on the disposition side of things. One, just would love to hear the nature of the buyers that you’re seeing out there. I mean it seemed like good portfolio execution on the early childhood education sale. And then also just more nuance related to the guidance, you have about $40 million I think of mortgage receivables that come due later this year. And I’ve been wondering if that’s — if you expect to get paid back on those or those get extended, if it’s in the disposition guidance or just what happens there?

Greg Silvers: I would say, first of all, it was a robust process with multiple bids and buyers in that, the depth of the buyer was good. This was a private fund that specializes in education. And like I said, I think Greg would say on most of our sales right now, we’re at least 2 or 3 deep on quality bids for our assets; so that’s strong. As far as the repayment of the mortgages, I think we have one built in there, but it’s — Mark, maybe you have.

Mark Peterson: Yes. There were 2 — 2 mortgages, as you say, mature [ph]. I think we gave the guidance that more than $10.75 million number that we have under our guidance. The other one, we’ll see what happens when more likely it gets extended.

Operator: Our question will come from Bennett Rose with Citi.

Bennett Rose: I wanted to ask you just two questions. One, I’m sure you saw that Six Flags is closing their Hurricane Harbor, Annapolis, and apparently doing kind of a strategic review of a number of their properties. Just wondering if they are communicating with you about any of your Hurricane Harbor properties or kind of what coverage looks like there?

Greg Silvers: Again, I would say, clearly, we’re in contact with Six Flags all the time as a good tenant. We don’t anticipate any of our properties closing. And I think as it develops, that will show you that they’ve got a higher and better use for that property and will generate substantial value associated with it.

Bennett Rose: Okay. And then I was just wondering, I used the credit line to pay down the bonds that were the — yes, the bonds that were coming due. Would you expect to do kind of a term that out later this year? Or maybe you could just talk a little bit about how you’re thinking about that.

Mark Peterson: Yes. We have some flexibility when it comes to that. If you think about it, you know, we have — like I said, $105 million on the line, paid off the debt subsequent to year-end which was about — took us to about $400 million on the line. And then you kind of look at investment spending and cash flows over the remainder of the year, it’s probably a net $100 million more on the line. So the good news is if we don’t do anything, we’re only about half drawn on the line. But I will say in our guidance, we do expect to do a bond [ph] transaction and turn that out to your point. And if you did a $400 million transaction, it would be down to about $100 million at year-end. So I think the good news is we have some flexibility with respect to that, we’re monitoring the market both in the 5-year and 10-year realm but likely we would do a bond transaction. We’re also monitoring the sale transactions as well.

Bennett Rose: Where do you think a 5-year or 10-year would price now for you?

Mark Peterson: So a 5-year spread-wise would probably be in the $180 million, $185 million area. So if you look at today’s treasury, it’d probably be in the 5.75% and 3.25% [ph] area. And that’s probably 60 basis points when the count at the rate and spread difference between that and the 10-year, about 60 basis points less than what a 10-year would be. Frankly, we think our spreads are still higher than they should be. And hopefully, quarters like this and as the box office recovers and people take note of that, we hope those spreads come in a bit.

Operator: Our next question will come from RJ Milligan [ph] with Raymond James.

Greg Silvers: RJ [ph]?

Operator: RJ Milligan [ph], please unmute yourself.

Unidentified Analyst: Sorry about that. Dispositions in the quarter, a little bit more than expected. And so I think on a standalone basis that would lead to a decrease in guidance, but guidance was up. And, Mark you touched on this in your comments, but I’m just curious if you could maybe quantify some of the components. Obviously, higher percentage rent but what else is going in there? And then the second part to that question is, as we think about the $5.08 at the midpoint for the year, how much of that is sort of non-recurring or onetime for our period [ph] collections that we should strip out as we think about 2026?

Mark Peterson: Yes. Let me walk you through that. So we were at $5.04 midpoint. You know, we increased percentage rent guidance at the midpoint by $3.5 million; that’s about 4.5% [ph]. And about $2.9 million to $3.5 million was prior period as I mentioned. So call that 3.5% or so of the of the 4.5% increase in percentage rents. And then we — going the other way, we increased G&A by about $0.01. So on the 2 explicit things that we provide, that gets you to about $5.07. To your point, the remaining 2 items — there’s probably about a $0.02 impact of the incremental dispositions. From a GAAP point of view, those average about [indiscernible]. From a GAAP perspective, even though we’re much lower than that on a cash basis.

So $0.02 on the dispositions and offsetting that going the other way, about $0.25 is lower interest expense, and that’s partially because we moved back the timing of our bond offering. So anyway, $5.04, the 2 explicit items gives you $5.07 and then kind of the net impact of about another $0.01 of less interest expense on the positive side and incremental dispositions on the negative side. I call it negative from an earnings perspective, but certainly it was positive from a portfolio management point of view.

Unidentified Analyst: And then just the follow-up to that is in the $5.08 number, how much of it is prior period rent collections that we should think about pulling out for a run rate for 2026?

Mark Peterson: Right. Really, it’s just that percentage rents $2.9 million; we don’t have any auto period deferral collections in this quarter nor do we plan any in our guidance. So it’s really through the first quarter, the expectation for the year right now is just the $2.9 million this prior period. So that’s about $3.05 [ph].

Unidentified Analyst: Okay. That’s helpful. And then — thank you for that. Stocks done well so far this year. Obviously, you guys have been self-funding through dispositions and free cash flow. At what point or stock price do you guys start getting a little bit more aggressive in thinking about issuing equity to increase the investment activity?

Greg Silvers: Again – RJ [ph], it’s Greg. It’s really about accretive growth. And so it’s really a function of the spread that you can get and where you can you can issue at. I think and I credit the team here, we’re delivering kind of at the top — near the top end of sector growth without having to issue equity. As opportunities and Greg and his team find those opportunities, we’ll take a look at it. I think from an absolute standpoint, probably as we get at or near an 11 multiple, it starts to get kind of much more interesting. We’ve talked about the depth of our opportunities. But yet, you know, when you can drive 4% growth with a 7% dividend and deliver 11% total shareholder return with what we think is very little execution risk and no capital markets, we think that should be quite appealing to investors and the opportunity to do more as we continue to demonstrate our ability to execute.

Operator: Our next question comes from Justin [ph] with RBC Capital Markets. [Operator Instructions]

Unidentified Analyst: Can you just provide some color on the investment pipeline and the types of opportunities in the market?

Greg Silvers: Yes. And I’ll let Greg jump in on this. I think overall, as we kind of demonstrate, it’s a depth and breadth that we’re trying to take advantage of. And as we’ve talked about before, look at opportunities which provides opportunities for future growth. Like — even in the golf, we’ve signed agreements where this hopefully will lead to future growth as we go forward. And Greg and his team do a great job about not only finding a deal but finding a pipeline of deals or supporting existing tenants. Greg?

Greg Zimmerman: Yes. And to follow-up on a couple of things there, Justin [ph]. If you look at the depth and breadth, I mean we’ve announced deals in eat & play attractions and fitness and wellness this year. To Greg’s point, on the golf deal, we have a forward commitment for funding. Our Penn Stack [ph] deal is our second with this operator, and our IAM deal is our second with that operator. So that’s the way we like to grow the business. As I’ve said and I mentioned earlier on the call, I think we see a lot of opportunities in the fitness and wellness space which we broadly define and includes our Hot Springs Resorts and now golf. So I would say we’re seeing opportunities in all of our sectors, probably not so much in gaming right now but all the other verticals, a lot of opportunities.

Unidentified Analyst: And then last one for me. Can you just expand on the current macro environment and how that could impact your underlying tenant base? And then, any impacts on future investment activity?

Greg Silvers: Again, as we kind of laid out, there’s actually, notwithstanding the moniker [ph] of consumer discretionary; there’s a lot of resilience in what we think is affordable entertainment and leisure options. It will ebb and flow within, like what we said. Eat & play was down a little, ski was up, theaters are up 17% year-to-date. So, again, those things will ebb and flow, but people don’t give up fun. And we’ve continued to see those kind of resiliency both in the current environment as we look back through history. And we’ll continue to be mindful of what we think are those value oriented drive-to-destinations that demonstrate that kind of resiliency and continue to deploy capital in a way that we think creates high quality and resilient cash flow streams that support rising dividends.

Greg Zimmerman: Greg, I would also add. One of our strong thesis is in the fitness and wellness space is that that’s the change in culture and that people are going to want to continue to spend money in those spaces despite the economic conditions. And, again, we’re seeing that in our fitness and wellness portfolio.

Operator: Our next question will come from Catherine [ph] with UBS.

Unidentified Analyst: My first, AMC on their earnings call said they expect 2026 box office to surpass 2025. So is that consistent with the conversations that you’re having with others? And does that at all influence how you’re thinking about theaters in the longer term?

Greg Silvers: I think that is consistent that we think it’s really driven by the content and the slate of movies, and that’s kind of where everybody starts that and the slate continues to get deeper. I don’t think it changes our perspective on theaters; we have continued to say that we want to lower that and that level of concentration and increase our diversity. Probably what it does is it creates better opportunities to execute on that strategy. But listen, it continues to improve the health and sustainability of the environment. If you look at someone like Cinemark, they are now trading back at levels pre-2019. So, again, we’re very, very excited about kind of that continuing involvement of box office. And as we’ve said on the slide that we presented, the mix has changed and we now have with food and beverage, even at $9.5 billion which is kind of the midpoint of what we’re talking about this year, kind of — EBITDAR [ph] contributions should be at or near back to box office levels that were $11.3 billion [ph].

So we’re really excited about where the direction would go.

Greg Zimmerman: Just to add to that, you know, that should increase our real percentage rent that goes through July. So we’ve got a nice momentum this year and expect an increase given the box office improvement expected for the following year. And keep in mind, we also have the other half of the AMC bump. So I think we have good results forecast over this year, and that momentum continues into next year.

Unidentified Analyst: Got it. Thank you. That’s helpful. And then my second question, you discussed the tariff and inflation resistance of the existing experiential portfolio. But I was wondering, maybe a little bit more on tariffs. How are you thinking about the possible impact to your development pipeline? Has the tone of negotiation shifted at all following April 2? Are there any concerns for things like projects getting delayed or paused at all or anything like that?

Greg Silvers: I think that’s a very good point. I think clearly there’s a lot more discussions on build-to-suit projects. Everything that we have right now is kind of priced out with GMP pricing. So pricing’s locked in prior to the implementation of the tariffs. But as we go forward, there’s no doubt that people are going to be looking at those things. Like, you know, for what we have in our forecast right now, we feel good about because we’ve got kind of locked in pricing. But we’re quite confident that it will at least be a topic of discussion as we go forward, whether that’s lumber, steel equipment; all of those things are going to be brought to bear, and we’ll be — we’ll just have to see kind of as we go forward. Right now as I said, we feel good about where we’re at right now, and we’ll just see how it impacts as we move forward.

Operator: Our next question will come from Mitch [ph] with Citizens Capital Markets and Advisory.

Unidentified Analyst: I think there was some previous commentary by an industry group, in the theater industry, about a significant amount of capital spend, several billion dollars of capital spend plan for theater upgrades. And I’m curious if that process is underway and you think there could be any disruption given what’s happening in the macro.

Greg Silvers: The process is already underway and we’re seeing it impacts some of our properties. So that’s — but it’s not — it’s literally kind of what we would call kind of expansions into large format and IMAX and new seating and things. We don’t really see an impact to that nor do we see a lot yet that that’s being impacted by anything related to tariffs that most of those commitments have already been ordered and made. So they laid them out in future schedules. So I haven’t seen any backup of that yet. Greg?

Greg Zimmerman: No. And Mitch [ph], I would say even though it’s a big number they announced, it’s per house a relatively limited impact; so it doesn’t take that long to make these conversions and they’re all economically beneficial. So we’re very supportive of that.

Unidentified Analyst: Great. That’s helpful. And then I’m — I hope I didn’t miss it, Mark. Was there anything specific that drove the percentage rent activity in the first quarter?

Mark Peterson: Yes. As I mentioned, we had $2.9 million of prior period percentage rents that hit percent of rents and interest. And then in addition, we had some additional percentage rents. As I mentioned, we took up our guidance $3.5 million — a lot of that relates to what happened in Q1. And when I say it’s percentage rents and percentage interest, it hits two different line items; percentage rent hits rental income and percentage interest hits mortgage and financing income, but that was the big delta.

Operator: Our next question will come from Upal Rana with KeyBanc Capital Markets.

Upal Rana: Greg, maybe you can talk about the strength of the consumers today and if you’re seeing any impact on consumer spend, at least in the near-term. The longer term chart that you provided was helpful, but just curious what you’re seeing today as it relates to consumer spend and behavior. Thanks.

Greg Silvers: Yes. I think it’s really, again, resilient. I mean we’re seeing pockets where it’s stronger and pockets where we’re seeing weakness. I would say if anything is going through there, it’s on the food spend. Even when we look at our eat & play, it’s the kind of the eat side of that that’s kind of down; so people are still enjoying the activities but not spending as much on that. So again, that’s consistent with what we’ve seen historically. So we still see — you know, like I said, ski — we saw fitness and wellness up, we saw eat & play down slightly. So it’s — this is the benefit of having a diversified portfolio and the experiential, and it manifests itself out in the coverage kind of stayed the same.

But right now there may be some real pressure at the lowest end of the consumer. But in that lower middle through the middle, we still feel it’s highly supportive. When we talk to our tenants, they say that. So, as long as — the key indicator when we talk to them, as long as employment remains good, people are incorporating these experiential opportune [ph] or avenues and venues into their everyday lives, and we see no reason for that to not continue. But, Greg, maybe…

Greg Zimmerman: I think probably the best metric is we’ve had 5 straight weeks of $100 million or more at the box office, including 2 weeks of over $200 million; so people are still spending. And as we mentioned, both Cinemark and AMC reported in the past week, and they have per caps of around $8 that are holding steady through the first quarter. So, that’s a real-time indicator that things aren’t so bad.

Mark Peterson: And the other metric I’d point to is the fact that we’re 2 times cover across the portfolio. That’s higher than 1.9 times [ph] pre-COVID. So we’re still tracking on a trailing 12 month basis higher than pre-COVID.

Upal Rana: Okay, great. Thank you. That was helpful. And then the box office has had a good start at 2Q but there’s some anticipation that we might get over to — get over $4 billion in the box office this summer, which only happened once since the pandemic due to Barbie and Oppenheimer. Just curious how you anticipate the box office trending heading into the summer months and then later in the second half?

Greg Silvers: Yes. I mean right now, we do — like I said, we build everything up bottom-up in our analysis. I will tell you, and we tell people all this time, we are horrible at picking movie by movie. I don’t think there’s a person sitting in this room with me that thought Minecraft was going to do $400 million and it will cross that this weekend. But the titles, the depth, and the quantity of titles look strong when you start to look. If you look at Lilo & Stitch that’s coming up is now trending higher in presales than Minecraft. So it really looks like we have a good shot at setting an all time, not COVID; I’m saying all time Memorial Day weekend record with the Mission Impossible film and Lilo & Stitch on their own doing together over $200 million.

So, again, when you have a constant flow of product, and you’ve heard us talk about this many times, it’s not necessarily the individual film, it’s the stacking up films week after week and where people get into the habit and going into that film and seeing those previews drives them to go more. And we’re getting back into that. So if you look at the — kind of Greg’s comment, if you look at 8 films over the next kind of couple of months that are expected to do a $100 million or more, that means we’re getting a big expected hit every weekend. And that kind of performance really is what drives kind of the excitement about the summer and beyond.

Greg Zimmerman: And then the second half of the year, pardon me, looks really strong with franchises; Fantastic Four, Superman, Jurassic World, Avatar ending out the year.

Greg Silvers: And then we’ve got Wicked, the second half of Wicked coming in. So, I mean there’s a lot of good titles. And again, it’s also a nice balance, we’re getting back into that. You’ve got Mission Impossible, you got Lilo & Stitch, you got that — that drives 18 to 24-year old males, but also drives the family. And as we get to that kind of good content and consistent number of high quality films that leads to good box office results.

Operator: Our next question will come from Spencer [ph] with Green Street.

Unidentified Analyst: Well, just one for me. As you look across your various investment opportunities as you continue recycling capital, have you noticed changes to bid ask spreads or cap rate movements in any of the sectors you’re underwriting?

Greg Silvers: Not big movements. I mean, again, we’ve consistently said we’re comfortably in the 8s [ph]; that’s kind of stayed there. And now, again, I would say Spencer [ph], when you look at quality variations, may move that a little bit but not a lot of changes in the bid ask spread. Greg?

Greg Zimmerman: No. I think that’s accurate.

Operator: Our last question will come from Yani [ph] with Bank of America Merrill Lynch.

Unidentified Analyst: Just a quick follow-up on the $2.9 million percentage rent and participating interest true-up [ph] in the first quarter. Just wanted to clarify, is that completely retroactive? Or you mentioned some type of agreements; just curious if that impacts level of percentage rents or participations going forward.

Mark Peterson: Yes. Sort of — as I mentioned, we’re taking guidance of $3.5 million, $2.9 million is prior period. So there is an incremental current year impact to percentage rents as we — from those tenants and borrowers, as well as kind of looking at the overall mix. So there’s kind of 2 components to it. A lot of it’s prior period but there is a current year component as well.

Greg Silvers: And I’ll jump in and add on that. Again, credit to our asset management staff who are kind of constantly evaluating these and this related to kind of discussions with these tenants and how they were calculating versus how we were calculating. It resolved favorably to our interpretation; so not only does it impact prior periods but it’s going to benefit us as we go forward as well.

Mark Peterson: Yes. A lot of that conversation was about deductions that we’re taking that we politely disagreed with. And then like Greg said, we resolved that this quarter.

Unidentified Analyst: Great. Thank you for clarifying.

Operator: There are no more questions. So I will now turn the call back over to Greg Silvers for any closing remarks.

Greg Silvers: I just want to thank everyone. I appreciate the opportunity to spend time with you and we look forward to seeing you at NAREIT in June. Thanks, everyone.