Ladies and gentlemen, thank you for standing by, and welcome to the EPR Properties special call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Brian Moriarty, Vice President of Communications. Thank you. Please go ahead, sir.
Thank you, Shannon. Hi, everybody, and welcome to the call. I'll start the call today by informing you that this call may include forward-looking statements defined in the Private Securities Litigation Reform 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 said 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-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 is included in the appendix in the slides that accompany this presentation, which have been furnished to the SEC under Form 8-K. If you wish to follow along, today's webcast may be accessed at the investor center on the company's website at www.eprkc.com. A copy of the slide presentation from today's call will be made available after the call on the company's website. Now I'll turn the call over to company President and CEO, Greg Silvers.
Thank you, Brian, thank you all for joining us this morning. Today, we're announcing the sale of our charter school portfolio and our intent to focus our energies on continuing to grow and expand our market-leading platform in experiential assets. On today's call, we will cover the transaction specifics and EPR's strategic focus going forward. With that, let's get started. If you're following along, let's move to page three of our slides, which describes the transaction. As you can see, on Friday we sold 47 charter schools for approximately $454 million in cash consideration to a fund sponsored by Rosemawr Management. Some key stats about our overall charter school portfolio. For our entire lifecycle of investing in that category, we invested $1.1 billion and earned a 10.5% unlevered IRR inclusive of this final sale transaction.
We had net gains in prepayment fees of $73 million, and this sale, we expect to result in a net loss of $19 million, which includes $26 million in non-cash straight line and effective interest. More than anything, what this does is it begins the activation of a topic that we've been discussing with many of you throughout the year, which is our deliberate migration to an experiential asset base. Flipping to the next slide, you will see what this transaction results in. As it shows, we will now be approximately 89% of our entire revenue will be driven by experiential assets. You will see to the right there how we are recategorizing.
Rather than speak in terms of entertainment and recreation, our focus will be on these eight categories that you see in the bottom right, whether that be theaters, eat and play, Ski, Attractions, Experiential Lodging, Gaming, Fitness & Wellness, and Cultural. We will now be reporting on our experiential assets as a whole in those categories. Continuing on to the next slide, the rationale for a change. This truly is about strengthening what is the most diverse experiential asset platform available to investors. It's a category that began at our inception and continues to be where the consumer's going, where we think the strength of our ability to identify, underwrite, and acquire assets. It reduces our income volatility and increases our predictability. Clearly, we've heard this message with regard to the charter schools, and this will return us back to a more predictable, less volatile income stream.
It simplifies our message and increases our focus. As I said before, this begins at our beginning and is a continuation of where most investors think our strengths lie. It strengthens our overall rent coverage. We'll show you a little bit on that here in a second. It creates a path for greater diversity in experiential properties. What we want to offer the marketplace, as we talk about, is the most diverse experiential platform to give investors the reason for why do they own EPR. It is because they're looking for that macro exposure of the experiential market, and we give you the most complete asset class available. Flipping to the next slide, a little bit of background on what we see in the experiential platform. Again, as I mentioned earlier, it's truly where the consumer's moving.
We talk about millennials, but it's also baby boomers, the two largest segments value experiences more than stuff, and we continue to see them demonstrate that with increased spending. We think that we will be uniquely positioned to take advantage of this. It leverages our institutional knowledge. As I've said many times, this is our history. We were in these experiential categories before experiential was recognized. We still see we're one of the only groups that can bring this sort of 20-year types of history, and it does create a meaningful market distinction in leadership, meaning this is the category that investors recognize us and our expertise for and gives them an additional reason for owning us if they want that exposure. Continuing to the next slide is really just kind of evidence in what I've said before.
If you look at spending as a % of total consumption or leisure experience spending, it continues to grow. It's really about those three drivers that we see before, the desire to connect and congregate, creating memorable experiences, and then sharing those experiences. Those three phrases capture our property types, and will continue to capture them as we move forward. Next slide talks about the market opportunity. Again, there's a lot of numbers that get thrown out there with real people throw out really big numbers. We did a very deep dive on this and tried to address what we think is an addressable market that we can both identify, underwrite, and acquire. Starting out at over $350 billion, we think there's at least $100 billion plus addressable in these 9 categories that you see below that we referenced earlier.
We'll have more information about these categories later when we activate our new website. Again, what it talks about is we've got a very deep market. It will allow for further property diversification. We have the experienced team to take advantage of that and combine that with our long and deep institutional knowledge. Flipping to the next page, you'll see what our portfolio will look like, again, referencing that 89% experiential focus will be over nearly 400 locations, and you see our rent coverage increase to nearly two times. Again, strong and strengthening to reflect that consumer demand. To the next page, we talk about our experiential portfolio and how many properties we have.
You'll hear a phrase now, you'll hear us talking about location-based experiences, where it's combining these long-lived activities and innovative concepts to create those concepts we talked about earlier, about a desire to connect and congregate, to create memories, and to share those memories. We think that, as I said earlier, we have a unique portfolio that allows an investor to take advantage of that. On the next page, you'll recall we have sold off our charter school portfolio, but we still have 11% education being in early ed and private schools. At this time, we don't see an urgency to sell that. Candidly, our focus is on growth, and we do not see the need right now at this time to immediately turn to sell those off. We may take advantage of opportunities to lower this exposure.
We will not be growing this exposure, but at this time, do not look for us to immediately sell this off. We will turn our focus to growing our portfolio in experiential assets. These are assets that are structured as long-term and triple net in nature, so they do not have the volatility that has traditionally been recognized with our charter school portfolio. On the next slide provides the portfolio detail and breaks it out into our categories here, and you see, again, that we have a very diversified asset base anchored in our original transactions in theaters, but growing in each of these other areas. Will continue to grow and diversify as we deploy these additional proceeds that we've gained through this transaction. On the next slide, on the capital redeployment, as we've said, we expect to rapidly redeploy this into experiential real estate, including casino resorts.
You also see our updated guidance there, and our change of not only earnings, but disposition proceeds, and we're not changing our investment spending for the balance of the year. With regard to guidance, we will provide guidance as is traditional at our fourth quarter and year-end call in late February. Also to line those up, we will also at that point disclose the increase in our dividend to reflect that earnings guidance. Overall, in summary, I think what we're saying is we have strengthened our portfolio, as the summary slide reflects, not only to improve our rent coverage, reduce our volatility, but also anchor us into a category or categories for which we have demonstrated institutional knowledge and proven ability to execute on.
It enhances our focus, as we say, on these experiential assets and creates a singularly focused organization committed to owning the best experiential assets in the business. It leverages our institutional knowledge. We have over 20 years of history in this, where we've built up long-standing relationships, and we are known both on the investor side, but also, and more important, on the tenant side, as the group that understands experiential and that people want to work with us. We are incredibly excited about the direction that we're going, and we think that we're uniquely positioned to have not only the team to execute this, but the opportunity in front of us. With that, why don't I stop there and open it up for questions?
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Craig Mailman with KeyBanc Capital Markets. Your line is open.
Hey, good morning, guys.
Morning, Craig.
This is Craig. Just curious, this has been an asset class you guys have gotten pushed back on over the years. Can you just give more color on why now? Why not try to do the full education portfolio at once? Just some thoughts there.
Sure, Craig. I think part of it is, if you look over the last two years, we've had significant dispositions. As anyone knows who is a triple net lease investor, significant dispositions also drive or create inhibitors to growth because you're overcoming on a net investment basis. I think what we had is two categories that are traditional and net lease structure that do not have the volatility, and candidly, from investors, what we've heard is it really was a focus on the charter school aspect. The other two are our early ed and our private schools, have been pretty well understood by investors and are owned by other groups. I think it was the charter school area which created the most confusion.
With regard to why now, I think it's probably about the opportunity set is presenting itself, and candidly, we've talked with people about the ability to grow our charter school portfolio was being diminished with the bond market. We thought not only we were at the right time, where people are focused on experiential assets, we thought it was a great opportunity to lean into our expertise and what we're known for. Candidly, we had an opportunity to exit this on a, what we think is a pretty strong transaction.
On a GAAP in cash basis, what were the yields on this transaction?
I think on a just a cash basis around the 9 is where we would put this up, which is about around speak about where people can acquire assets, low-mid 8-9. I think as the transaction relates to this, we got out at kind of near our investment level, say, for straight line. We thought it was given the quick volatility and turn of those assets, we thought that was a good execution relative to where we are deploying.
GAAP was probably another little over 100 basis points more than that from a GAAP perspective.
Okay. You brought up other investment opportunities. Casinos have been mentioned several times in the release and this morning. Do you have anything under contract or LOI in the casino space that you guys kind of prompted the timing here to raise this much capital or to redeploy?
While, Craig, we don't talk about anything specifically at this point, I think where people are going is our thoughts. We were pretty clear that we'll be able to rapidly deploy this capital. I think we chose our language very succinctly and specifically. While we can't speak to any specific transaction right now, I would just say hold on.
Okay, great. Thank you.
Thank you.
Our next question comes from Robert Stevenson with Janney. Your line is open.
Hi. Good morning, guys. Mark, given that we're almost to December here, what's the variability between the upper end and the lower end of the revised guidance range?
Well, percentage rents are biggest in the fourth quarter, that has some variability. We also obviously have the water park operations that can vary a bit. Those are probably the two major things. It won't be termination fees or anything like that. Termination fees will be about a little over $1 million for the fourth quarter as a result of sales that we've already done. That's already taken into account in the guidance that relates to education sales. Beyond that, it's really those two items are probably the primary variability.
Okay. The timing for the last $21.6 million asset, that's going to be somewhere in December at this point?
The $21.6 has already happened. There's one more sale in December.
Oh, sorry.
that we project. It's about $6 million or so.
Yeah, we think the first or second week of December that will occur.
Okay. In the slide deck, there's a 2% Gaming in your new industry breakdown. What is that today that's in the portfolio?
That's our ground lease up at the Resorts World.
Okay. All right. Thanks, guys, appreciate it.
Thank you.
Sure.
Our next question comes from Brian Hawthorne with RBC Capital Markets. Your line is open.
Hi, can you talk about what were the other strategic options you looked at?
I don't know that I think we thought about strategic options in the phrasing of your question. I think this was more a repositioning and refocus. I think what we, both as a management team and our board, I believe that there were options for us to become the go-to player in the experiential market set. If you look at other people who are claiming that, they neither have our experience, they don't have our diversity, and more candidly, they don't have our team that creates kind of a flow-type business. If you look at the $800 million that we do this year, that's probably 50-plus transactions, there's not another group out there that's built to execute that kind of transaction flow, nor to create the kind of diversity that we have to offer investors.
I think this was not necessarily I know it wasn't evaluation of strategic options. It was a focus of our strategy to more greatly align with input that we were getting from investors.
Okay. I guess when you guys look at Gaming assets, I know you don't talk about specific deals, but are there any regions where you're seeing more opportunities?
Again, like I said, I think there's quite a bit of opportunity out there across the board. The good thing is that now we are much like we thought. We're engaged in almost all of those conversations, so people are calling us. When we started on this path earlier this year, we broke it down into phases. We wanted to have a dialogue with our investors to gain acceptance, and then we wanted to gain credibility with tenants, and I think we've successfully executed both of those. I think now is the execution phase, where we deliver on an acquisition. I think as the language and tenor of what we're talking about, I think we are approaching that phase rapidly.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Anthony Paolone with JPMorgan. Your line is open.
Thank you. Good morning.
Morning, Tony.
Can you talk about how you think about the portfolio cyclical risk as you move forward and away from education and just more purely experiential?
Actually, it's a great question, Tony. I think we did a lot of deep dive work on correlation with recession and things of that nature. I think we are well-positioned. If you look at theaters, even in a downward move, they're countercyclical to recession. They outperform, so does our drive to Ski. If you look at water park hotels, they outperform hospitality during the period. I think if people will take the time and look at the data, I actually think our property types will actually perform very strongly in all environments. We have the data to back that up.
Okay. On the balance sheet, in terms of the deal just closed last week, is there anything for the cash near term? I can't remember if you guys had anything out on the line or any near-term ability to pay down debt.
No, we didn't have anything at the line at the end of the quarter, nor do we now. It'll go in the bank, but as Greg said, we do expect to rapidly deploy it, redeploy it in 2020. For now, it's just earning about 1.5%.
Okay. Just last question, does this mean that going forward, we're done with the termination fees and gain sort of items and earnings going forward?
Certainly with respect to education, which is where the lion's share of them came from, there will be no more of those.
Okay, great. Thank you.
Thank you.
Our next question comes from Collin Mings with Raymond James. Your line is open.
Thank you. Good morning, everyone.
Morning, Collin.
First question for me, can you maybe expand a little bit more on your plans for the remaining education portfolio going forward? Again, it sounds like you will look to sell only as it makes sense, but do you have any of those assets already on the market? Just maybe a little bit more color there, given clearly the emphasis on growth is going to be more experiential.
Yeah. Collin Mings, we do not have any of those on the market right now. I think as I said, our attention's going to be turned on growth and how we grow and expand our asset base, which correlates to dividend growth. I think it doesn't mean that if we're offered what we think is a very good price that we can't, but we want to be more methodical about how we exit the rest of those assets. It doesn't mean that if it presented an opportunity, we wouldn't. What I'm really trying to say is we don't have a sense of urgency to exit those. We think once we deploy this capital, the remaining education will be below 10% and getting smaller as we continue to execute on that. I think over a period of years, could you see us be totally experiential?
I think that's a reasonable expectation. I just don't think we have an urgency to deal with those assets or at least sell those assets as we sit here today.
Okay. That's helpful. Then similar to Gaming, you've discussed this to some extent on prior calls, but just given you're explicitly calling out the buckets of Cultural and live venue properties, maybe just update us on your thoughts there in context of this refocus.
I think if anyone follows, there was a recent article in The Wall Street Journal last week that was talking about live performance venues and things that are going on there, and how well they're performing. We're engaged with all of those parties right now. What we're trying to say is don't look at any one of these 9 categories because we're engaging people on all 9 of them right now, and that it's not going to be a focus of just Gaming. It's going to be all of these categories. To create that diversified platform, we think we need to be addressing all of these categories. We're having active dialogue with everyone, like I said, whether that's live performance, whether that's Cultural, whether that's Gaming, whether that's even still theaters.
We think, as I said, this is where the consumer is spending their dollars. It's supported by the two largest demographic groups that are in existence, and we think that it provides not only opportunity, but stability and differentiation for us relative to the 10 to 15 retail-focused REITs.
Got it. Then just one last one here. Just given this revamping, if you will, of the way you're breaking down the portfolio and the different categories, the 9 types that you highlighted there, do you intend to add any further disclosures or new disclosures, kind of that are more property bucket specific going forward?
I think what we'll probably and we'll have more of this at the fourth quarter, we'll probably be reporting on the Experiential platform as a whole just because we want people relatively to think in terms of Experiential as opposed to any one of these individuals. We will give you direction with regard to these individual categories when we're making investments, or we have an investment thesis that's supported by that category.
Similar to what's in the presentation. We'll give revenue by category, which for a triple net is really a proxy for NOI by category as well. We will provide that each quarter, and it'll be in our investor presentation, so you can see the buckets of experiential and where that allocation is. You'll see the smaller education piece as well.
All right, I appreciate it. Thank you, guys.
Thank you, Collin.
Once again, ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touch-tone telephone. Our next question comes from Nick Joseph with Citi. Your line is open.
Thanks. Greg, you mentioned rapidly redeploying the capital a few times. How quickly do you actually expect to put it out?
Again, it's a fair question. I think what we would say is that I think by the first quarter of 2020, we would like to have this capital redeployed into one or multiple of these categories.
When you think about the yield that you can achieve on the acquisition side, you mentioned selling at a nine or a 10 for the education portfolio. What kind of yields are you targeting? Just trying to get a sense of the longer-term evolution from the deal.
No. Nick, I think we've been upfront about the fact that there's probably where the good assets are trading are mid sevens to low eights. There's some dilution drag to this. We think that the quality of the overall portfolio, the lack of volatility, what we've gotten from investor feedback is that that's where they want us to grow. There is probably multiple expansion by cleaning up that story and reducing that volatility even if there may be short-term near dilution relative to that investment.
Makes sense. Thank you.
Thank you.
Our next question comes from John Massocca with Ladenburg Thalmann. Your line is open.
Good morning.
Morning, John.
What were some of the other factors driving the change in guidance, given the reduction was not kind of the same between the top and the bottom of the range?
We had a $0.04 change at the midpoint. If you do the math on the charter school portfolio, that wasn't already budgeted. The $454 million, and you put about a 10 cap on that for GAAP, then you do the math, that's about $4.7 million of income roughly. Then if you divide by the shares, that's about $0.06, and we get about a $0.01 back on interest, call it $0.05 related to that. As I mentioned, we also had a term fee that we didn't expect earlier in the quarter. Five minus the $0.01 term fee gets you to the $0.04 change. I think the math works if you apply a 10 cap to the portfolio sale and offset it with a bit of interest and the term fee.
Okay, did the midpoint, but maybe kind of the high and the lows are What's kind of causing the variance and how that changed?
Well, the time has passed, so we obviously have less volatility as we enter the final month of the quarter. As I mentioned, the small $0.02 on either side is really related to potentially percentage rents, some of our operational assets, i.e., Kartrite. Those are really a cause. As a % of the midpoint, it's really not very big. It's just $0.02 on either side. Really, the midpoint is our best estimate of what we expect to finish the year at.
Okay. It sounds like it's just more clarity on Cartwright and percentage rent.
Yeah, that's the primary driver.
Okay. I guess kind of philosophically speaking about the acquisitions themselves. How should we think about the sale price versus maybe potential upside from the termination fees? Did you capture a decent chunk of that kind of upside, do you think, in the sale price? I know you talked about it's not a nine cap. It's about kind of what assets go for in the market. Maybe kind of why if you didn't capture any kind of upside, why not just simply hold these and let them kind of play out over time?
No, it's a fair question, John. I think if you think about where these assets are trading and in the upside, people are often trading them for the termination fee that comes out of that. You do have a portfolio basis. Remember, we have things in there like our Imagine note and things of that nature. We thought relative to the positives of dealing with it in one transaction as opposed to talking about it and wondering, because the next question somebody would have is, what about reverse selection and negative selection, and do you get to the end? We found a transaction that we felt gave us value relative to our book basis that we had on the properties. It lines up with what we're trying to get some other things accomplished. I think overall, it was the right execution for us.
Okay. That's it for me. Thank you very much.
Thanks, John.
Thank you. I'm currently showing no further questions at this time. I'd like to turn the call back over to Gregory Silvers for closing remarks.
Thank you, Shannon. Again, thank you all for your time and attention today. We look forward to talking to each of you in the coming weeks and months to further explore kind of where we're going. I would also remind you that we'll have an updated website later this morning, which will include today's slides for reference. As I said, we look forward to where we're going, and we think we're uniquely positioned to take advantage of this. Thank you for your time and attention, and we look forward to talking to you later.
Thanks.
Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.