Ladies and gentlemen, thank you for standing by, and welcome to the EPR First Quarter Earnings Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to
hand the conference over to your speaker today, Brian Moriarty, Vice President, Corporate Communications. Thank you, and please go ahead, sir.
Okay. Thanks for joining us today for our Q1 2020 earnings call. I'll start the call today by informing you this call may include forward looking statements as identified in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward looking statements. Discussion of these 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 ks 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 ks. If you wish to follow along with 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 company President and CEO, Greg Silvers.
Thank you, Brian. Good morning and thank you for joining us on today's Q1 earnings call. Before we begin, on behalf of myself, the EPR Board of Directors and our entire team, I want to express our wishes for everyone's health and safety. Clearly, we have entered unprecedented times and our focus on experiential assets places us at the tip of the spear. As the COVID-nineteen pandemic escalated, we recognize the need to proactively communicate and have provided several updates the condition and status of the company.
Through these updates, we have highlighted actions we've taken to ensure strong liquidity and provided context around our long term viability illustrated by a liquidity analysis. Beyond sharing our Q1 results, today we will discuss additional steps we are taking to fortify our balance sheet, including suspending our monthly cash dividend to common shareholders after the dividend payable May 15 and the suspension of our share repurchase program following the execution of our proposed covenant waiver. Substantially, all of our properties are currently closed due to state and local government action. As a result, we reported that our tenants and borrowers paid approximately 15% of contractual base rent and mortgage payments in April and we do not expect any significant changes until after operations resume. Additionally, we reported that company has agreed to defer rent and mortgage payments on a month to month basis for substantially all of the customers that did not pay rent for April.
And today, we will provide further detail regarding future deferrals. We are proactively working with our customers to evaluate their deferral request and to structure appropriate repayment plans as we gain more clarity into when they can reopen for business. In most cases, we believe deferral is appropriate. No one anticipated revenues going to 0 in a matter of 3 short weeks and continuing for months, depending upon the business and the restrictions imposed by state and local authorities. We currently expect that most of these deferrals are recoverable.
Our announcement regarding the temporary suspension of our monthly cash dividend to common shareholders and the planned suspension of our share repurchase program was made after careful consideration and a clear understanding of our cash collections relative to our monthly dividend. While we believe we have ample liquidity due to the actions we have taken, we are being prudent in our approach due to the uncertainty of the ultimate length and impact of the pandemic. It simply does not make sense to borrow from tomorrow given the uncertainty of this recovery. It is important to remember that these events, however, are transitory. We will be a strong company when we get to the other side and we remain committed to reasonable leverage levels and a strong balance sheet.
Our tenants enjoyed broad consumer success for decades before this tragedy and they will return. The question is one of pace. How quickly will our tenants be able to regain momentum? Our current expectations are for our properties to begin reopening beginning in May. However, absent a therapeutic or a vaccine, we believe social distancing will remain the norm and capacities will be limited.
Against this backdrop of challenges, I want to reiterate our strong belief in the long term macro trend of experiential properties. People will come back to our properties. With so many of us sheltering at home, we can anticipate incredible demand for us to once again come together with friends and colleagues to share an experience. And we own the properties where we will share those experiences. Now let me turn over to Greg, who will provide more detail on the portfolio.
Thanks, Greg. At the end of the first quarter, our total investments were approximately $6,700,000,000 with 3.71 properties in service and 98.4 percent occupied. During the quarter, our investment spending was $41,900,000 and our company level rent coverage was 1.92 times. Our experiential portfolio comprises 285 properties with 48 operators, is 98.3 percent occupied and accounts for nearly $6,000,000,000 of our $6,700,000,000 in total investments. We have 2 properties under development.
Our first quarter spending was entirely in our experiential portfolio, comprising the acquisition of 2 strong theaters and spending on experiential build to suits. Our education portfolio comprises 86 properties with 16 operators and at the end of the quarter was 100% occupied. I now want to turn to our view of the reopening and rent payment timelines. We have ongoing discussions with our major exhibitor partners about their reopening. At this time, we believe most theaters will reopen around July 1.
Their plans are naturally subject to the timing of lifting of stay at home orders by individual state and local authorities and completely dependent on the studio release schedule. We anticipate social distancing requirements will limit capacity in most theaters, but given typical seat utilization metrics, we anticipate theaters will have sufficient capacity to meet demand. Our exhibition partners have safety and comfort for their employees and guests top of mind as they come back to the movies. They're diligently developing appropriate health and sanitation measures. Based on our discussions, we anticipate a gradual ramp up with films from the back catalog likely at discount prices and reduced operating hours until the studios begin releasing new product.
This will allow the exhibitors time to work out their health and sanitation measures and educate guests with new normal practices as they ramp to 1st run product. As life begins to return to normal, seeing movies on the big screen in a theater will, as it always has, provide an exciting cost effective entertainment option. The film slate lines up well for the remainder of 2020. Tenet currently scheduled for July 17th will be the 1st major release followed by Mulan on July 24th. Titles scheduled for the remainder of 2020 include Wonder Woman 1984, Black Widow, Top Gun: Maverick and No Time TO Die.
We're bullish on the 2021 film slate, which includes a number of strong offerings: Avatar, Matrix 4, The Fast and the Furious 9, Spider Man 3, Ghostbusters: Afterlife, Jungle Cruise and MI7. There's been much press regarding Universal's comments about shrinking the theatrical release window after Trolls World Tour. Earlier this week, Disney affirmed that they very much believe in the power of the theatrical launch program for their big movies. We continue to believe that studios, including Universal, will in large part honor the theatrical release window because it's in their economic self interest to have multiple staggered distribution channels to maximize profitability. We don't believe the performance of Trolls World Tour represents a permanent shift in the consumer's long standing preference to enjoy movies on the big screen versus home viewing.
Rather, in our view, it was driven by unprecedented worldwide stay at home orders, which shuttered all theaters and led to families chasing limited entertainment options even at a premium. We don't draw the conclusion that if families had the option to see Trolls World Tour on the big screen, they would have chosen PVOD over the big screen at these levels. As noted in our April 21 press release, despite AMC's $500,000,000 of private offering proceeds, we determined it was prudent to begin recognizing revenue for AMC on a cash basis. As Greg noted in his remarks, we are proactively working with all of our customers, including AMC, to evaluate their deferral requests and to structure appropriate repayment plans as we gain more clarity into when they can reopen for business and how quickly they can ramp up their operating cash flows. I also want to spend a minute discussing anticipated reopening schedules for our other major customer groups.
Again, it goes without saying these businesses are subject to ramp up, driven by when jurisdictions lift restrictions, the specifics of each operating platform and operator, including individual markets and circumstances, governmental capacity restrictions, and most importantly, the time it takes the public to become more and more comfortable with health and sanitation measures. These projections are based on what relevant jurisdictions are currently communicating and our ongoing discussions with customers. As we all know, this is a very fluid situation. These can certainly change and they will vary from state to state and city to city. We expect gym openings through May.
We expect phase openings in our Eat and Play category through May June. We anticipate over 50% of our attractions and cultural operators will be open by July. A few attractions could miss all or part of the season due to governmental health and sanitation measures and the feasibility of operating for a truncated season. We anticipate openings in experiential lodging market by market with most if not all opening by July 1. We anticipate Resorts World Catskills opening in July.
As it's a ground lease, we don't anticipate any impact on rent payment. We don't anticipate any impact to the ski season opening in the Q4. Turning to our education portfolio. In many jurisdictions, early childhood education schools were not mandated to close, but didn't have sufficient enrollment to operate efficiently. We expect early childhood education operators to reopen and as stay at home orders are lifted and parents need childcare.
A number of our schools will open in early May and we anticipate a 2 to 6 month ramp up based on capacity limitations and typically softer summer months. Many of our private schools are operating with distance learning. We expect them to reopen in August September for the fall semester. Finally, I want to take a moment to outline what we believe our rent collections will look like at a very high level through the remainder of the year. We're actively working with our customers to structure appropriate deferral and repayment agreements.
We're in the early innings and learning daily as we go. We're in constant communication to understand anticipated reopening and ramp up trajectory and the unique health and sanitation challenges presented in each discrete line of business. We have strong relationships with our operators and make long term investments. We're focused on their long term health. In general, we anticipate a ramp up of rent and mortgage payments through Q3 and Q4 with the repayment of deferred amounts commencing in 2021 and in some cases depending on the deferred amount extending beyond 2021.
We expect and are verifying that our customers will continue to pay 3rd party expenses, including ground leases, taxes and insurance. Mark will provide additional color on the revenue recognition and cash collections implications of our prospective rent deferral and repayment agreements. And I now turn it over to him for a discussion of our financials.
Thank you, Greg. Today, I will discuss our financial performance for the quarter, provide a balance sheet and liquidity update and close with a discussion of some of the financial implications of the COVID-nineteen disruption as we move forward. FFO as adjusted for the quarter was $0.97 per share versus $1.36 in the prior year and AFFO for the quarter was dollars due to the non cash write offs of straight line rent totaling $12,500,000 primarily related to AMC Theatres as previously disclosed. Please note that the operating results for the Q1 of 2019 related to the public charter school portfolio, which we sold last year, are included in discontinued operations. Those prior period results included a $5,000,000 termination fee.
Total revenue from continuing operations for the quarter was $500,000 was up $500,000 from prior year due to the revenue associated with new net investments in experiential real estate and revenue related to the Car Rui Resort that is operated under a traditional REIT lodging structure, which impacts other income included in total revenue as well as other expense. These increases were offset by the straight line write offs, which were recognized as a reduction of rental revenue. Note that the Cartwright Resort and the St. Pete, Florida hotels in which we own equity interest and that are also operated under traditional REIT lodging structures were shut down as a result of COVID-nineteen for the second half of March. Additionally, tenant reimbursements included in rental revenue and property operating expense each decreased
expense in such
cases. Finally, percentage rents for the quarter totaled $2,800,000 versus $1,400,000 in the prior year, and the increase was mostly related to our casino ground lease and to a lesser extent certain movie theaters. Transaction costs were $1,100,000 for the quarter compared to $5,100,000 in the prior year. The prior year expense primarily related to the preopening expenses in connection with the Cartwright Resort. At January 1, 2020, we adopted the accounting standard update measurement of credit losses on financial instruments commonly known as CECL.
At adoption, we recognized $2,200,000 dollars of credit losses on our mortgage notes and notes receivable portfolio through retained earnings. During the quarter, we recognized an additional $1,200,000 of credit loss expense mostly due to the impact of COVID-nineteen on the model we used to calculate these losses. Now let's move to our balance sheet and capital markets activities. Our net debt to gross assets was 38% on a book basis at March 31, and our net debt to adjusted EBITDA ratio was 5.1 times atquarterend. At quarterend, we had total outstanding debt of $3,900,000,000 of which $3,100,000,000 is either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4,300,000 dollars Additionally, our weighted average debt maturity is approximately 6 years and we have no scheduled debt maturities until 2022 when only our revolving credit facility matures.
As we outlined in our press release in April, we believe we have ample liquidity to see us through the market disruption caused by COVID-nineteen, With $1,200,000,000 of unrestricted cash on hand at quarter end and the temporary suspension of our monthly common dividend that Greg discussed, we have multiple years of available cash on hand even if the April level of rent and interest collections were to persist. Subsequent to the end of the Q1, we purchased approximately 1,000,000 shares for 20,400,000 of the 150,000,000 common share repurchase program authorized. But as I will discuss later in my comments, there can be no assurance that this program will be fully executed. Because of the meaningful impact the COVID-nineteen pandemic has had on our customers, I want to take a moment to discuss how we intend to recognize revenue going forward as well as provide the level of cash collections we anticipate over the remainder of 2020. As we move into the Q2 for those tenants in which we provide rent deferrals related to COVID-nineteen disruption, we plan to elect not to treat such deferrals as lease modifications as allowed per recent guidance from the FASB.
Instead, we will treat such rent deferrals in 1 of 2 ways. For those tenants in which full payment of deferred rent is deemed probable at 75% or greater, we will record rental revenue and accounts receivable. For those tenants where collection of deferred rents is not deemed probable, we will treat such deferred rents as variable payments and only recognize such deferrals as rental revenue when the cash is received. As an example, for tenants in the 2nd quarter that receive a deferral of all minimum rents for the 2nd quarter, no such minimum rents will be recognized in rental revenue in the Q2 and these deferred rents will be recognized in future periods earnings only when and if collected. Note that if a rent concession agreement related to COVID-nineteen disruption period is consummated with the tenant during the quarter and we feel that such adjusted rent is probable of collection, we will recognize rental revenue at degree upon rent level.
Similarly, any contractual Finally, in some limited cases where lease changes are more significant in nature, we may treat such changes as For mortgages, interest is expected to be fully recognized during the COVID-nineteen disruption period and any deferrals will be reflected in interest receivable or as an increase of the mortgage balance due upon maturity. This treatment is similar to the 1st category of deferral treatment I discussed for tenants where all deferred rents are expected to be collected. The slide you see illustrates the expected percentage of total pre COVID contractual cash revenue that we expect to recognize in our financial statements for the last 9 months of 2020 of 75% to 85% and full year 2020 of 80% to 90%, respectively, using the revenue recognition methodology that I just described. We have also provided the expected percentage we expect to collect of such contractual cash revenue in the same periods of 35% to 45% and 50% to 60%, respectively, with the differences from the revenue recognition percentages related to receivables we expect to have on our books at year end and collect thereafter. While each of these percentages are subject to change as new information becomes available and deferral agreements are finalized, we thought it'd be helpful to show you how we currently see this information over the remainder of the year.
Because the accounting I just walked through causes some pressure on near term quarterly results and the fact that certain financial covenants under our bank credit facilities and private placement notes are calculated based on the most recent quarterly net operating income, we expect that we will not be in technical compliance, which will be non payment related with such covenants at the end of the second quarter. Accordingly, we are in discussions with our lenders and private placement noteholders to obtain a temporary suspension or modification of these covenants with some of the suspended financial covenants expected to extend through the first quarter of 2021. We also determined that we will temporarily suspend our monthly cash dividend to common shareholders after the common share dividend payable on May 15th, except as may be necessary to maintain REIT status and to not owe income tax. And we will suspend the share repurchase program upon the effective date of the covenant modification agreements, which is expected to occur in the next 30 days. Finally, as previously announced, due to the uncertainties created by the COVID-nineteen disruption, we are not providing any forward earnings guidance.
Now with that, I'll turn it back over to Greg for his closing remarks. Thank you, Mark.
With that, why don't we just open it up for questions?
Thank you. And our first question comes from the line of Nick Joseph with Citi. Your line is now open. Nick, your line is now open. Nick, your line is now open.
Can you hear me? Yes.
Yes, we can.
Okay, perfect. I'm not
sure what happened. I wasn't on mute. I was just saying, I appreciate all the color and the disclosure that you guys have provided. And then curious what percentage of your tenants have received some sort of government support either through the PPP or any other program?
Nick, we have it's Greg. We have had some, but it's limited. Most of our tenants are bigger and exceed the 500 employee limit and therefore are not applicable to them given the size of their operations.
Okay. And then just thinking about kind of repurposing, I recognize kind of the idea is that many of these properties and product types will reopen and hopefully go back to somewhat normalcy over the coming months years. But when you think about
And again, I think, Nick, as you said, we think these will go back. I mean, we are the largest landlord to the 3 largest operators and so our properties are integral to their ongoing success. But fundamentally, these are big boxes. So again, they're big boxes with a predominantly extra large size of acreage. So they're pretty easy to transform into any manner of things.
We've taken a wing off and transformed that to another operation. It's about $1,000,000 to bifurcate that wing. We then had excess parking that we've sold for, I think, somewhere in the neighborhood of $4,000,000 to $8,000,000 of the excess parking. So the actual the economics can work very well depending upon the jurisdiction that you're in.
Thanks.
Thank you. And our next question comes from the line of Collin Mings with Raymond James. Your line is now open.
Hey, good morning. First question for me just on the covenant discussions. You seem to reference that you expect an agreement to be effective within the next 30 days and potentially in place at least through the Q1 of next year. Can you maybe just elaborate on what terms are being modified? Where negotiations stand right now?
And to clarify, with the terms of the waiver, just maybe talk about your ability to pay dividends and repurchase shares. Is that for the entire duration? Or just maybe elaborate a little bit more on again just where the covenant discussions stand?
Yes, sure. This is Mark. I think first to point out on the bank covenants, a lot of those are quarterly driven. So you can imagine the Q2 where we're doing some of these deferrals. And for example, in the case of AMC and not recognizing much cash income maybe other than ground leases in CAM, it creates a problem with respect to those covenants that are calculated in that way.
And really what we're seeking is waivers related to 2 leverage covenants, kind of total debt to total asset value. And again, that asset value is kind of a quarterly capped calculation. And also, we have a maximum unsecured debt to unencumbered asset value test. So both of those, we will get waivers for. And then there's 2 coverage tests kind of fixed charge coverage and unsecured interest coverage, which we'll also seek waivers for.
We'll go through 2021 on a couple of these covenants. We don't anticipate needing that, but kind of just planning for any downside we think will be covered. So as far as discussions, we're in discussions with both groups and that's our bank credit facility that holds our line of credit and our term loan as well as our private placement holders. And in both cases, we need a majority approval. And I will say we have a term sheet with our lead banks that we've they've approved.
We've held meetings with our top banks that take that comprise more than 50% of our credit facility. Those discussions are going very well. So we don't anticipate any issues getting the waiver done. And as far as the other issues you mentioned, we agreed as part of that process to suspend our dividend. With our liquidity, I think the bank might have been open to some form of dividend, but we thought it didn't make sense to borrow to pay the dividend, and we want to come out on the other side of this with strong low leverage and be in a better position.
The stock buyback will continue through the covenant closing or the covenant modification closing like we said like I said in my comments and you just mentioned, we expect that in the next 30 days.
Okay. And then just also
to your final question there, again, if things moderate faster, better than we're projecting, we have the ability to However, again, you've heard listen, I think there's a lot of discussion that's going on about how this is going to go forward. And I will tell you our crystal ball is murky at best. We're working with all of our operators, but we have built a model that says we need to be prepared for withstanding in this social distancing environment until there's option or a vaccine, because I think there's a general discussion out there that people that the thing that is keeping people back is government restriction that as soon as they open up the doors people are going to come driving in. We do not adhere to that. We think there is an aspect of this that these any businesses that are communal, the actual determinant of that will be the customers.
They will make the decisions of whether they're willing to be part of these activities. And so we built a model that said, hey, let's prepare for the worst. If things get better, we can always change that and react to that. But if we're prepared to handle the worst, then we know we're going to come out the other side. We're going to have good businesses.
We have good properties. We're going to be fine. It's just getting across that desert.
Got it. And then maybe in that same line of thinking there, recognizing you have agreed to defer on a month to month basis for now. Greg, can you just maybe elaborate on how durable the rent levels were that were established again prior to the pandemic and how durable those will be going forward as well as just the ability of your tenants to ultimately repay that deferred rent. Implicit in some of your comments was the recognition that some rents are possibly going lower. And are there cases where it just makes sense now to go ahead and switch to some sort of percentage rent for some tenants just given that there's likely to be a ramp period here of businesses starting to open back up?
I actually think, Collin, you're dead on. I think there very much could be a ramp period where it's percentage rent. But again, that will be against the contractual rent. That would be a credit against that. I think as Mark said in his comments, we think and our belief is that most of these people will or most of our customers will be able to pay this back.
It's just a period of over what time and what security do we get for that. A lot of variety of looking through that. And solutions will be different, meaning that if somebody is closed for 2 months and they're back up for 3 months, it's going to be different than if somebody is closed for 8 months or limited for 8 months. So I think we'll take a look at all of those kind of options. But clearly, by the information we're showing you, we think most of these are recoverable.
We've made a decision with regard to AMC and given their leverage and the discussions that were going on that it may it was prudent for us to be more conservative with them. I think that doesn't mean that we don't think we'll recover those balances. It's just from an accounting standpoint when we say there's a 75% chance of a 90% recovery when there's a lot of discussion out in the market about them at least considering restructuring. It's hard for us to make an argument to the auditors that you don't have some level of risk and the most interpret the fact that we put them on a cash basis that we think we're not going to recover any of this deferral. It's just a matter of us being prudent about it, being conservative and giving us flexibility to deal with it once we know what levels we're at.
Thank you. And our next question comes from the line of Brian Hawthorne with RBC Capital Markets. Your line is
now open.
Hi, good morning guys. So the covenants, if you were to trip on and you don't come to an agreement, is that just an incurrence covenant or is there something else that it could be?
On the bank facility and private placement, those are not incurrence covenants. Those are coverage metrics. We don't anticipate tripping any of the bond covenants, which 3 of the 4 of those are incurrence related.
Okay. And then there have been a couple of your tenants that have had some issues, like Cinemax went bankrupt and Punchbowl Social defaulted or close to defaulting. I guess what do you have any other tenants out there even if they're a little smaller like that that you're concerned about? And I mean, I guess what are your kind of expectations for some of those smaller tenants that do go bankrupt or have some disruption, significant disruption to their business?
I mean, clearly, the numbers that we're showing you today reflect our best belief in these. Even when you look at a Sinemex filing, you got to go back and say that was probably driven by their wanting to get out of a transaction that they had previously committed to. We have 2 we only have 2 theaters with them. So we don't again, on all of these, what we did is we went down through a tenant by tenant basis probably through our top 30 to 40 tenants which are going to get well down significantly below 1% and did a complete review of every one of these. So the numbers that we're talking about today reflect our best belief as to what occurs.
It doesn't mean there's not some of those with potentially one of the names that you mentioned where there could have disruption, but those numbers reflect that already.
Okay. Thank you for taking my questions, guys.
Thank you. Thank you.
Thank you. And our next question comes from the line of Rob Stevenson with Janney. Your line is now open.
Good morning, guys. Greg, I think the market has been expecting the common dividend suspension. But given the lack of near term cash flow and the prospect it could be a while before you're back to anything approaching normal in terms of cash rent collections, what are your and the Board's thoughts on the payment of the preferred dividends? And is there any debt covenants either now or in the modifications that would cause you to need to put those dividends into arrears? Any other reason if not why you wouldn't use your liquidity to continue to pay those?
We let's answer it first, Rob. We have no expectation that we will not pay our preferreds. We anticipate paying our preferreds, our interest. The only thing that if you go back to our liquidity analysis and the way that we broke it out there, you saw that we had more even at 0 levels years of liquidity to pay those obligations. So we anticipate fully paying those obligations.
Okay. And nothing in the debt covenants either today or in the modifications that would impact that? No. Okay.
No.
And then, Mark, what's the difference, in terms of AMC versus Regal and Cinemark in terms of deciding to move to the cash revenue recognition, is it just that AMC, at least for a while, if not still today, appear closer to a bankruptcy filing? Or was there something else that sort of had you delineate between AMC and Regal and Cinemark in terms of revenue recognition?
Well, I think kind
of heading into this crisis or this COVID period, AMC had higher leverage than those others. And so they came into it like with a higher leverage balance sheet. And then with the disruption, they went out and did raise $500,000,000 so that provides some liquidity through what they're saying is through Thanksgiving. But we thought just given the whole credit profile was different than other tenants that it merited putting them on a cash basis and just was prudent to recognize that just when we get the cash.
Okay. And then just last one for me. Early childhood education, mean when you sit here today and having looked at the financials of these and having gone through some issues in the portfolio over the last year or so, If some of these operators aren't able to come back and survive, are there other tenants out there that could move in and take over the space? Or is it basically on a more regional and multi location basis? Or is it really then going to wind up being if you wind up having any hiccups there, that it's really going to wind up being asset by asset, small operator by small operator to replace them?
I think, Rob, it's more the former than the latter. Part of one of the benefits of what we did with migrating our portfolio, the CLA portfolio to Creme is we've had the great opportunity to be talking with a lot of different operators and there were many operators who were part of that process. So I think our playbook, if for some reason, which right now clearly we don't anticipate, but for some reason there was something there. There was demand for these facilities before. We think there will be demand for them, and we have the short list of people who have expressed demand for those.
Okay. Thanks guys. Appreciate it.
Thanks.
Thanks. Thank you. And our next question comes from the line of Tim Stephens. Your line is now open.
Can you go back to
your comments, I missed it actually, about some of the conversations that you and maybe AMC and the movie production studios are having. It just seems like if there is one more production studio that follows Universal's mentality, dual releasing, it could cause some severe problems. So what's the latest? Yes. Can you
give me a call next week?
Thanks. Yes. Ki Bin, it's an interesting you got some feedback, but what we find is really interesting is you say if there's one more studio does it, do you know Disney is doing it with Artemis Fowl. So there are people who are doing this. The better thing is to think that nearly 80% or 90% of all movies are getting moved to next year.
Even Universal, any movie that was not within 2 weeks of release and did not and has an expectation of over $40,000,000 of box office got moved. Universal even moved them. Everybody moved them. So the idea that we're taking a Trolls world tour movie for which the dollars, which again I think it's very interesting even when we look at that. We're talking about a movie that made $100,000,000 in digital which represents 5,000,000 downloads at $20 And comparing that to North America and the 1st 3 weeks when the reality is Trolls, the original movie made $350,000,000 and it's box office worldwide.
So I think to a certain degree, we're comparing apples and oranges. You had Universal already back up from saying they were already started backing up and saying they're going to support the box office. You've had all the every studio that has a film title that they think has box office potential already moved to later in the year or 2021, yet we use the 10% to prove the point rather than the 90
Thank you. And our next question comes from the line of Craig Mailman with KeyBanc.
Thanks guys. Apologies if I missed this, but could you just give us a flavor of who actually did pay, who's in the 15%?
Well, again, Craig, we're not naming individual tenants, but let me say in the big picture as Greg kind of mentioned, I mean, there are certain of our tenants that are open and operating or have finished their season. And so those are a likely group of people who are paying. The people who are shut down are the people who are not. So again, just in the big picture, if you think of ski, ski was done pretty much for the year. And we remember, we collect generally the entire year during the operating season.
Education is operating at some capacity. So that generally gives you a feel for it, Craig.
Okay. And do the water parks, don't they pay into escrow after the season with those also?
They do. And so you could have some those in there. But we've also tried to forecast going forward, they're about to go into their productive season. So the numbers that Mark put forth kind of are evidence of our belief or our understanding of what we think will occur for the rest of the year.
Okay. And you guys flagged AMC as an example, they raised $500,000,000 They clearly have the cash to pay it. I mean as you guys are having these conversations, how many of your tenants actually have the cash to pay it, but are kind of hoarding it because of the uncertainty about reopening and the pace of reopening. And so they want to make sure they're viable versus paying near term expenses and just how that would impact their ability to kind of repay in a 4 quarter time period or whatever the case may be?
I actually think that's 100 percent correct. I think most are in that category in the sense that there is not yet a great understanding of how long this is going to take, what levels that we're going to be able to operate in, what the public response is going to be to this. And so I think there are a lot of people who are just trying to figure out and say, is this really are we going to see some normalized levels in the fall? Or are we going to be, as we said, into 2021 to when we hopefully have a vaccine for this? And I think that is what's driving and our
And just theaters in particular, just give us a flavor. No one's necessarily calling for bankruptcies, but could you just give us a sense, you guys are the largest landlord to a lot of these guys, just the quality of the theaters that you guys own and maybe the coverages of those versus maybe others in their system and just their willingness to affirm those leases and bankruptcy versus reject them? I know it's a tough question, but just some kind of thoughts around the quality of yours versus maybe others they may have in the system.
Sure. And like I said, without any specifics, as I said before, I think it's important to remember that we're the largest landlord for all three of those guys. So I think our portfolio is very important to them and very integral to their success. That doesn't mean that we haven't had theaters that we've had opened for 20 years that maybe the rent. So you have some level of exposure on those.
But we are predominantly, like I said, in major markets with these operators and they're very important kind of to them. So again, I can't say that if you had a restructuring, you wouldn't have some level of risk. I think the idea that this is as draconian as I've seen some estimates, I think are way overstated. I mean, we will have to see, but if you break things out into quartiles, could we have 10% to 15%, 20% in the lower quartile? Yes.
But it's not nearly as draconian as what people think. But Greg, I don't know if Well, I was going to say most
of our theaters played a pretty substantial audiences from 300,000 to 500,000 people. So they're in good trade areas.
Okay. And then just one last one for Mark. The cash flow analysis was very helpful. Could you just give us a sense of where leverage could go near term in some of these stress cases and where it could trend back to assuming these are money good on most of these deferral agreements as we head into 2021?
Yes. Obviously, if you're doing a debt to EBITDA calculation like we typically do on a quarterly basis and the EBITDA is a quarter times 4 and there's stress in the quarter, you get some odd metrics for debt to EBITDA in the short run. But I think the we have modeled this out and we've positioned ourselves particularly with the dividend suspension that we come out of this right in range where we've historically been kind of in that 4.6% to 5.6% level as the way we see it sort of in our base case, and that's kind of consistent with like I said, we've always been inconsistent with investment grade metrics that we've enjoyed for a long time.
Great. Thanks, guys.
Thank you, Craig. Thanks, Craig.
Thank you. And our next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is now open.
Good morning.
Good morning, John. Can
you guys talk a little
bit about the ski tenants? I mean, basically fill up their cash reserves that they're kind of that you guys are entitled to?
Yes. I mean, what we said is generally speaking, that's the way they work. And what we're saying is without calling out any tenants specific at who's paid, that is one of the areas what I said was those areas where their season was effectively over were a majority of our cash paying and then those that are operating. So that your assumption is not entirely inaccurate.
But maybe some to have a little bit more of kind of an April, March bias might have had a little bit of a struggle to kind of fill up those escrows?
Again, not really. But again, like I said, I don't want to talk about specific tenants, but that's if there's anything, it's insignificant in that.
Yes, I
can even add to that. We received escrow payments even in the month of April.
Yes.
Okay, very helpful. And then switching over to maybe kind of amusements, let's say in a positive case scenario where things maybe accelerated in terms of opening customer visits. At what point would those properties need to open and kind of see accelerated visitation in order to kind of cover their escrows on the back end through the winter months? I know it's a little tough because there's going to be a lot of variables. But where would you kind of need to see openings to kind of maybe get more comfortable with them potentially being cash rent payers again?
And I'll let Greg Zimmerman add to this, but I think it's going to be geography dependent. If you're operating a water park in Texas and Arizona and California, again, not as weather dependent. We have a water park in Hawaii. So again, not as weather dependent. So I think it will actually the other aspect that we'll throw into this that just so you understand is probably when school starts and if schools are starting and or if they're delayed or whatever.
So I think most of these are going to try to open as Greg said in the May June timeframe, try to see how those things go. It will be jurisdiction by jurisdiction and we shall we'll see. But Greg Well, and the only thing
I would add is obviously the less seasonality they have the harder it will be to make money. So as the season gets truncated, that will be the challenge. So the earlier they open, the better.
Okay. And then how are you kind of tracking your tenants' compliance with their obligation to pay operating expenses, particularly real estate taxes? And is there any case scenario where you might book a property tax accrual charge before the tenant defaults just given the current environment?
Again, we have a track taxes are actually pretty easy because we can track the actual payments and monitor that. Insurance, depending upon the insurance certificate that you make, the insurance is non cancelable without notice. So we'll get notice upon that. We've contacted all of our ground lessors and told them to notify us if they haven't been paying. So we've got a pretty good system we believe to kind of know if there's anything going on or at the first hint of something.
And right now, we've had good compliance with that along the way. The only thing
I would also add, Greg, is we're in real time conversation with these tenants every single day and reminding them they need to do that and working through those issues. So one of the benefits we have of not having a massive amount of tenants is we can be in communication with people.
Yes. And the other thing, John, I'd say is this is the reverse side of the PPP. We're dealing with larger tenants, their insurance programs are generally broad based across their entire portfolio. So it's not the little really little guys that we're dealing with.
And just to reiterate what Greg Zimmerman said, in general, even where we have deferral agreements being negotiated, we're generally requiring them to keep paying those CAM payments and real estate taxes and ground leases. So we think that will continue and we're monitoring that as Greg said.
Very helpful. And then one last kind of quick detail one. Regards to kind of Kartrite, I guess, what's maybe kind of the cash burn rate there while it shut down?
Probably about $1,500,000
a quarter.
Okay. That's it for me. Thank you guys very much.
Thanks, John. Thank And our next question comes from the line of Ken Stevens with SunTrust. Your line is now open.
Thanks, Ken. When you guys started negotiating with tenants, what type of financial benefits are you trying to structure in? And especially if things get worse, are you considering warrants and other type of beneficial financial things that you can kind of ask for?
Ki Bin, it's a great question. And I think most of ours right now are discussions. It's like you say, things change depending upon how long someone's going to take to repay. So the easy things that we're talking about is additional security with the FF and E of properties, which was their investment, which goes to the ability that if you ever have a problem, you can port that entire property without any disruption. So I think all of those things go into play.
I think it's for most of our tenants, we're having all of these discussions even to include if they have properties on their balance sheet, do we take properties and payment of rent. So all of these discussions are live and going on, but what you said is correct. What it really is a function of is how long, how great is this, what's the time payment for, what's security, what's the reasonableness of the repayment period.
Okay. And I think you guys disclosed this, but I just didn't fully understand it. But in April, what is your cash burn rate? And can you talk about how that starts to improve over time according to your schedule that you put out there?
Yes. It was $23,000,000 a month and I think that's what it will be for a while. We kind of projected each of those things that G and A, property expenses, we included losses at Kartrite and our St. Petersburg property while they're shut down. And just amend the thing I said earlier, the $1,500,000 burn rate that I mentioned for Kartrite for the quarter is $1,500,000 per month that includes Kartrite and St.
Petersburg. So I should amend what I said there. It's $1,500,000 per month for both. And we've just projected while they're shut down, that's the run rate for that. So $23,000,000 we think is a run rate that is good in the near term and really what we think our burn rate is.
Now to Mark's point on that, if those properties open up and they start to do better, that could be something that improves. But I think most of the other things, we think our tenants are covering these we know these tenants are covering these 3rd party expenses. So it really is interest kind of G and A preferred.
Yes. Because in that number, even we have our us paying ground leases and so forth. And as Greg said, we just said if we were getting 0, what could that be? So that's the $23,000,000 as Greg mentioned. Expect it to be better than that as we get paid for some of those things.
Okay. Thank you, guys.
Thanks, Ki Bin. Thanks, Ki Bin.
Thank you. And our next question comes from the line of Anthony Cholone with JPMorgan. Your line is now open.
Okay. Thank you. I joined late, so apologies if this was addressed. But can you talk about just the distribution of EBITDAR coverage, particularly in the theaters pre COVID, like how many were maybe at 1 or below versus at the average versus significantly above just the general how that distribution looked?
Yes. And Tony, we don't talk about generally I mean, I think what's reasonable to think is that we do have a bell curve operating. What we said was of our theater rents that could potentially be below where our coverage is below where we'd like them. Could we have 10% to 20% of our overall theater portfolio? Yes, we think that's reasonable, but that's spreading it across a lot of operators.
So I think we feel really good about our portfolio relative to that these are the theaters that these operators, us being their largest landlord, are key and integral to their success.
And do you have any, just broader stats on where your theaters rank, either percentile wise or otherwise just nationally in terms of pre COVID box office take?
Yes. I mean, again, our theaters are going to tend to be at the higher end on a revenue basis just because as I said, we're in major metropolitan areas. So either on a revenue per screen or a total box office sales, they're going to be predominantly in the top 1,000, if not top 500, top 100. But Greg, I don't know
if you had Yes.
Again, it just goes most of our theaters play to 300 1,000 customers. And I think that's the real metric the number of bodies that are buying tickets.
Okay. And then you put in your slide the expectation for a GAAP revenue recognition. And I think you touched on a little bit about just how the collection of rents may play out or in that there's a lot of uncertainty there. But does the fact that you expect to recognize GAAP pretty consistently with what you already did suggest that you're just going to wait for the deferred rent to come in? Or do you anticipate percentage rent type situations for some period of time and then maybe a makeup over the balance of the lease?
Or is there any early read on that?
Yes. I think that's your question is right on Tony is, first of all, we probably will have these agreements may have some level of partial contractual or percentage rents as we ramp up and go through this. And that's again that will be a credit against kind of what the contractual rent was. And then it's kind of figuring out, okay, now that we know that the full amount is X, what is the right period of time to get recovery of that? What is the right period of incremental security to make sure that we're looking at that correct?
And so I think what we're saying right now, we were not a group who rushed out and said I'm going to sign up an agreement that says you get a deferral and you pay it back in 3 months because we are not we did not believe at the time that this was a 3 month issue that we think we need to figure out kind of where this is going. Think it will come back once we get to the other side with a therapeutic or a vaccine, but we needed to be able to identify what is the size of the deferral, what's the best way to get that back, what are our various options and looking at monetizing that. So, your question is dead on.
Okay. And then just, last question. Are there any parts of the portfolio that you think you're going to end up having to operate either on your own or swap out operators?
I mean, clearly, I think when we show that we're treating kind of 85% to 90% of our revenues as deferred and collect. We're not anticipating that there's sections of our whole groups of our properties that we believe that.
Okay, great. Thank you.
Thank you.
Thank you. Our last question as well as a follow-up question comes from the line of Collin Mings with Raymond James. Your line is now open.
Thank you. Just two quick follow ups for me. Just first, just bigger picture, just as we go forward, what are some adjustments you're working with your tenants to make your properties to make to maybe better align with social distancing requirements and kind of if that's the new standard? And how do you think about deploying some of your capital on that front? Just any thoughts there would be helpful.
Yes, Colin. I mean, clearly, we're trying to be a conduit for various groups to be understanding of best practices and what people in one area of congregate entertainment are doing. We're sharing that information. We don't look at this as a competitive advantage. We look at it as a way to make all customers feel safe.
I wouldn't see us deploying capital to do that. Again, I think at least now these are not capital intensive as much as they are figuring out health safety mask, are people going to wear masks, sanitation and hand sanitizers, how many seats apart are you going to put people. I think plexiglass at the counters or things like that. It's not a lot of capital intensive, but it is trying to figure out the human nature side of this. What is it where people feel safe?
What do they need to have? And what do you need to have in place? And the good thing about our properties is there's a lot of them that are congregate. And so we're generally grouping those into indoor congregate and things that are outdoor, because outdoor has a different perspective and people may feel safer given that the fact that they're outdoor than an indoor. And so what Greg and his team and our asset management team are trying to use that kind of best practices and share that information across the entire spectrum.
Got
it. Okay. And then, Mark, just on the covenant negotiations, just to clarify, you detailed some specific progress on the bank group front, but just how are the private placement note negotiations flowing on a comparative basis? Just wanted to clarify that from my other question.
Yes. I would say we've had discussions with our private placement group. We've had discussions with the largest holder. They trail a little bit of the timing of the bank group, but we expect a similar outcome that we'll get that done as well. That number is obviously a lot smaller number.
It's $340,000,000 whereas the obviously the bank group side is the there's a $750,000,000 outstanding plus the $400,000,000 term loan. So our priority was really first on them. And basically the private placement group feeds off whatever the bank decides essentially, and then we'll get that piece done as well. But we expect that all to be wrapped up in the next 30 days.
Perfect. Thank you both.
Thank you. Thank you, Colin.
Thank you. And this does conclude today's question and answer session. I would now like to turn the conference back to Greg Silvers for further remarks.
Well, thank you all for joining us today. And the last comment I'll give you is stay safe. And we look forward to talking to you next quarter. Thank you.
Thank
you. Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.