Good afternoon, ladies and gentlemen, and welcome to the third quarter 2019 EPR Properties earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. An instruction will follow at that time. If anyone should require assistance during the conference, please press star zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Mr. Brian Moriarty, Vice President of Corporate Communications. Sir, you may begin.
Thank you, operator. Hi, everyone. Welcome. Thanks for joining us today for our third quarter 2019 earnings call. I'll start the call today by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Reform 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-K and 10-Q. 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. I'll turn the call over to the company's President and CEO, Greg Silvers.
Thank you, Brian. With me on the call today are the company's CFO, Mark Peterson, and making his debut, our CIO, Greg Zimmerman. I'll start with our quarterly headlines and then pass the call to Greg to discuss the business in greater detail. Mark will then follow with a review of the company's financial summary. Let's get started. Our first headline, strong quarter anchored by continued demand for experiential assets. Our focus on the experiential economy continues to sustain solid portfolio performance and consistent rent coverages. As evidenced by the third quarter box office results and the positive results at our attraction properties, the consumer continues to support our tenants and properties devoted to the experiential economy. This trend of increasing consumer demand for our tenant offerings should translate into opportunities to fuel our future growth. Our second headline, record low bond yield and spread.
During the quarter, we issued new 10-year senior notes in the largest size and at the lowest yield and spread in the company's history, and we completed the redemption of higher-priced senior notes that were due in 2022. As a result, we have lowered our cost of debt and significantly extended our average debt maturity. Our third headline, well-positioned balance sheet with ample capacity. In addition to our debt activity, we continued to raise common equity during the quarter, and we have nearly $120 million of unrestricted cash on hand at quarter end, and nothing outstanding on our $1 billion line of credit. Clearly, we are well positioned for growth. Our fourth headline, increasing earnings and investment spending guidance.
Consistent with the strong results year to date and our forecast for the remainder of the year, along with a robust pipeline of attractive opportunities in the experiential space, we are increasing our guidance for FFO as adjusted per share as well as investment spending. Mark will provide the detail on guidance in his comments. With that, I'll turn it over to Greg Zimmerman and then rejoin you after Mark's comments with questions.
Thanks, Greg. At the end of the third quarter, our total investments were nearly $7.2 billion, with 416 properties and service that were 99% occupied. During the quarter, investment spending was $118.1 million. Our proceeds from dispositions were $294.4 million. Our company-level rent coverage was 1.89 times, demonstrating the continuing strength and consistency of our portfolio. At quarter end, our entertainment portfolio comprised approximately $3.4 billion of total investments, with two properties under development, 195 properties in service, and 26 operators. Our occupancy was 99%. Our rent coverage was 1.76 times. Strong movie product continues to be the key driver of solid box office results, with the third quarter box office up by approximately 3% year-over-year. The momentum is anticipated to extend with the fourth quarter expected to exceed 2018, which should drive 2019 box office close to the 2018 all-time high.
The fourth quarter opened strongly with the "Joker" record-breaking opening weekend to be followed by a strong film slate, including "Star Wars: The Rise of Skywalker," "Frozen 2," and "Jumanji: The Next Level." Our entertainment invested spending totaled $10.9 million in the third quarter, consisting primarily of development and redevelopment projects across our portfolio of theaters, entertainment retail centers, and family entertainment centers. At quarter end, our recreation portfolio comprised approximately $2.3 billion of total investments, 83 properties in service, and 19 operators.
Our occupancy was 100%, and our rent coverage was approximately 2.28 times. The operators in our attractions portfolio, which is part of our recreation segment, have delivered solid results this season, with visits and revenue through the August trailing 12 months period up approximately 4% and 7% respectively, versus the trailing three-year average. Investment spending in our recreation segment totaled approximately $89.6 million, which included $68.7 million of new mortgage loans for recreational properties, $6.6 million on the Kartrite Waterpark Hotel, and the balance consisting primarily of build-to-suit developments of golf entertainment complexes and attractions. The primary new investment was a $64.2 million mortgage loan, as opposed to the traditional REIT/hotel operating structure, secured by the recently opened Margaritaville Hotel Nashville in the heart of Nashville's SoBro district, one of the country's hottest experiential destinations, within walking distance of Bridgestone Arena, the Ryman Auditorium, and the Nashville Convention Center.
On the disposition front, on July 1st, as previously announced, we received payment in full on our $189.8 million Schlitterbahn mortgage note. This payoff was facilitated by Cedar Fair's purchase of two of the Schlitterbahn Group's Texas water parks for $261 million, including both the operating business and the real estate. In the third quarter, Vail Resorts closed on their previously announced acquisition of Peak Resorts. Vail operates our Northstar California resort. As reflected in our supplemental, with the addition of the six Peak Resorts investments, Vail is now our fifth-largest customer. At quarter end, our education portfolio comprised approximately $1.3 billion of total investments, 137 properties in service, and 55 operators. Our occupancy was 98%, and our rent coverage was 1.51 times. We continue to make excellent progress on the transition of our CLA schools to Crème de la Crème.
Through the end of October, we have successfully transferred 17 of our 21 properties to Crème, they anticipate taking over the remaining four Crème schools during the fourth quarter. Investment spending in our education segment totaled approximately $17.6 million, primarily consisting of acquisitions, build-to-suit developments, and redevelopments of public charter schools, private schools, and early childhood education centers. During the quarter, we received $104 million in disposition proceeds related to the sale of four operating charter schools, one early childhood education center, and the payoff of a mortgage note secured by a charter school. These proceeds included $11.3 million of termination fees and $1.8 million of prepayment fees. The transactions reflect the strength of the municipal bond market available to charter schools. The consumer continues to evidence strong demand for experiences. We have a deep pipeline of opportunities to expand our already broad-based portfolio of experiential assets.
We continue to shift our focus from non-experiential areas of business toward experiential properties, an asset class that we have been successfully investing in for over 20 years and one that will be the primary growth driver going forward. With that, I turn it over to Mark for discussion of the financials.
Thank you, Greg. I will begin today by discussing our financial performance for the quarter. FFO as adjusted for the quarter was $1.46 per share versus $1.58 per share in the prior year. During the third quarter of 2018, we recognized $20 million in prepayment fees related to the payoff of a mortgage note that was secured by ski properties. If you exclude this income, our FFO as adjusted per share for the quarter increased by about 10% versus prior year. Note that FFO as adjusted per share amounts for both periods include the impact of education-related lease termination fees, which I will discuss later in my comments. Total revenue for the quarter increased by about 18% when you exclude the $20 million of prepayment fees from the prior year that I just discussed. This revenue increase was driven primarily by revenue from new investments, net of dispositions.
Percentage rents and participating interest for the quarter totaled $3.6 million versus $2.7 million in the prior year. As previously reported, we received payment in full on mortgage notes receivable totaling $189.8 million related to Schlitterbahn water parks on July 1st. During the quarter, we also received $17.8 million related to the early payoff of a mortgage note secured by a charter school, which, as anticipated, included a prepayment fee of $1.8 million. Note also that the Kartrite Resort and Indoor Waterpark opened during the second quarter and continues to be operated under a traditional REIT lodging structure, which impacts other income included in total revenue as well as other expense. Finally, about $7.5 million of the revenue increase relates to the adoption of the new lease accounting standard, which is offset by higher property operating expense, as I have discussed on previous calls.
The income tax benefit of $0.6 million versus income tax expense of $0.5 million in the prior year related primarily to the deferred tax benefit resulting from the operations of The Kartrite. Transaction costs were $6 million for the quarter and related primarily to the transfer of nine CLAs to Crème. As a reminder, deferred taxes and transaction costs are excluded from FFO as adjusted. Severance expense was $1.5 million for the quarter and $1.9 million year to date. This expense was the result of a shift in resources from non-experiential areas of our business toward experiential properties. During the quarter, we also completed property sales for net proceeds totaling $86.8 million and recognized a combined gain on sale of these properties of $14.3 million.
Included in the property sales were three charter school properties sold pursuant to tenant purchase options for net proceeds of $59.4 million, and the related termination fees totaling $11.3 million included in gain on sale have been added to FFO, to get to FFO as adjusted. These fees were higher than anticipated as an operator of one larger public charter school elected to exercise its option that was not in our plan. I'll have more on both our expected disposition and termination fee levels later when I discuss our revised guidance for the year. Now let's move to our balance sheet and capital markets activities. Our debt to adjusted EBITDA ratio was 5.2 times at quarter end. Our net debt to gross assets was 40% on a book basis and 32% on a market basis at September 30th.
At quarter end, we had total outstanding debt of $3.1 billion, all of which is either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.3%. During the quarter, we issued $500 million of new 10-year unsecured notes at a coupon of 3.75% and redeemed all $350 million of our 5.75% senior unsecured notes at the make-whole cost. Strong investor demand allowed us to upsize the amount on the notes beyond our original plan as we took advantage of a very attractive coupon, the lowest in the company's history. Additionally, we paid in full a secured mortgage note payable totaling $18.6 million and fixed the interest rate on our only remaining secure debt of $25 million for a period of five years at 1.39%, which was lower than the previous variable rate.
We are pleased to now have a weighted average debt maturity of approximately seven years and no debt maturities until 2023. We think extending our average debt duration as well as fixing variable interest rate debt in today's low interest rate environment makes a lot of sense. Also during the quarter, we once again took advantage of the market support of our experiential strategy and issued approximately $52 million in common equity under our direct share purchase plan, as well as another $17 million subsequent to quarter end at a combined average price of $76.59. This brings our year-to-date issuance under this plan to approximately $306 million. The decision to take on the additional long-term debt proceeds versus using our line of credit, as well as raising incremental equity, both of which were not in our previous plan, had the impact of reducing near-term earnings.
With low leverage, $116 million of unrestricted cash in the bank at quarter end, nothing outstanding on our $1 billion line of credit, and no near-term debt maturities, our balance sheet is now even better positioned to fund our growing pipeline of opportunities as we finish the year and move into 2020. Based on the results to date and our expectation for the fourth quarter, we are raising our guidance for 2019 FFO adjusted per share to a range of $5.44-$5.52 from a range of $5.32-$5.48, and raising our guidance toward the upper end for investment spending to a range of $775 million-$825 million from a range of $700 million-$850 million. We are also increasing our expected disposition proceeds for 2019 to a range of $400 million-$475 million from a range of $300 million-$400 million.
Guidance can be found on page 30 of our supplemental. There you will also see that we are raising our guidance for 2019 termination and prepayment fees related to education properties by a total of $8.2 million to what we have earned through 9/30. Note that this means that we are expecting no additional such fees in the fourth quarter. Note that overall, our guidance for the full year 2019 FFOs adjusted per share is increasing by $0.08 at the midpoint, which is to reflect $0.10 more in education-related fees and $0.03 more related to the strength of our core business, offset by $0.02 related to the impact of additional capital raising activities and $0.03 related to higher dispositions than previously expected.
Finally, note that when you exclude the non-education related prepayment fees of $71.3 million we received for the full year 2018 or $0.93 per share, the midpoint of our increased FFOs adjusted per share guidance for 2019 of $5.48 reflects about 6% growth. Now with that, I'll turn it back over to Greg for his closing remarks.
Thank you, Mark. As we've discussed today, the third quarter was very productive for EPR. Whether that be from asset performance, investments, or balance sheet management, we continue to position the company to take advantage of the many opportunities that the experiential economy is creating. With that, I'll open it up for questions. Sarah?
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your line is open.
You guys are bringing down leverage here, kind of bolstering capacity, raising 2019 investment spending a bit. Could you talk about, I know you're not giving guidance here for 2020, but are you guys anticipating a ramp in investment spending in 2020, and that's why you're trying to kind of lower leverage here in anticipation of that, in case there's any market choppiness? Can you just give some insight into the I know you hit on it a little bit, but maybe a little bit more insight into what you're seeing on the opportunity front that prompted the extra capital raises?
Sure. This is Greg Silvers. Since we have two Gregs now, we'll probably kind of have to distinguish ourselves. I think it's a little of both. One, I think we think the opportunity set is getting stronger. I think also just kind of prudent balance sheet management and understanding the way that the 10-year has bounced around today. When we have a price that works for us and works for our tenants, it's prudent of us to take advantage of that, and we're always looking forward in the way that we're preparing for. I think overall, I do believe that we've kind of, over the last couple of years, changed the dynamic to where we're kind of run rate up somewhere around that $700 million to $800 million, maybe more, of investment spending, and I think you're going to see that at least coming out us forward.
Greg, I don't know if you have anything to add to that.
No, I don't. I think that we have a robust pipeline, and we need to be prepared.
Given where the stock is there anything else baked into guidance for potential incremental capital raises to give you even more capacity?
At the midpoint, no. In the range, we could decide to raise capital if we decided to, as we did this quarter, to kind of create a war chest. No, our guidance doesn't assume any more equity issuance from in the fourth quarter beyond the $17 million we already did in the fourth quarter.
Got you. Okay. Greg, the other Greg, maybe could you talk about kind of the areas where you're seeing the best opportunity flow among your kind of different segments?
Sure. As Greg mentioned, I think we're seeing opportunities across all of our investment opportunities. We're still seeing opportunities in theaters, opportunities in family entertainment centers, experiential lodging. A lot of opportunities as reflected in our investment in Nashville, which is one of the hottest experiential places in the country, with 15.2 million visits a year. Those are the kind of opportunities we're looking for, and we're seeing them.
On CLA, could you guys just talk about, I know it may be a little bit early, but just how those transition schools are doing in terms of retaining students in terms of coverage there?
Yeah, this is Greg Silvers. I think you can interpret the rate at which we originally forecast it would be March of 2020, and we pulled that number back. I think that's a reflection of the success that this new operator is enjoying and the fact that they wanted to accelerate it. I don't think that we don't report on individual kind of assets or tenants, but I think their actions are indicating that they're successful with this and want to get them under their umbrella faster, and I think that bodes well for their performance.
Okay. When you guys recut the rents, I guess, could you give us a sense of where you thought pro forma coverages would come in versus maybe where CLA original coverage had kind of indicated on the $20 million?
Right. If you remember, Craig, our coverages on those properties were actually not bad. We just had a tenant that was having structure from other properties that were owned. We would think that those coverages would at least be where they were at before, which was around the 1.5 range, if not increasing with what we think is an operator that's not as stressed as CLA was.
Great. Thank you.
Thank you.
Your next question comes from the line of Nicholas Joseph from Citi. You may ask your question.
Thank you. Can you guys walk through what makes the Margaritaville Nashville Hotel attractive from an experiential standpoint?
Sure. This is Greg Zimmerman. One thing we like about it is it has a lot of amenities. It's got the Margaritaville brand. It's got a rooftop bar. It is right in the heart of the SoBro district near Broadway in downtown Nashville. It's walkable to Ryman Auditorium. It's walkable to the Bridgestone Arena, where the Predators play. It's walkable to the Convention Center and Broadway Street. There are 15 million visits a year in Nashville. 44% are for leisure travel, and the average stay is almost four nights.
For us, it's exactly the kind of experiential lodging that we're looking to invest in.
The other thing I would add, Nick, is as we've talked about, again, we got this into a fixed income and type investment, being a mortgage. Our commitment to stay out of the variability of a hotel model, I think we've honored in the way that we've done this. We think that on an LTV basis, this asset is worth significantly on the lower end of the leverage relative to it. It's also where the Sirius Margaritaville station is actually broadcasting from this hotel. Again, it's got a lot of experiential lifestyle brand to it, and we think that it's consistent, kind of being in an entertainment district with directionally what we said the strategic focus of our efforts in this area are directed.
Thanks. That's helpful. Then, maybe just on gaming, can you give an update of where you are in terms of entering that space? And if you've bid on any assets and if they're already in the pipeline currently today?
We don't talk about specific, whether we're bidding or not. Again, we continue to make progress in that area. We were just out at the G2E conference and had 17 or 18 meetings. I think, hopefully, in the near term, we'll have something. As Mark said, there's nothing in our guidance that would indicate that we have something planned. We're making efforts. People are very interested in talking to us, so hopefully, that will translate into opportunities sooner rather than later.
Thank you.
Your next question comes from the line of Tony Paolone from JPMorgan. Your line is open.
Okay. Thank you, good morning. Just first, a clarifying question for Mark. The $0.03 of strength from the core business, is that just investment activity, or is that percentage rents, like on the NOI side? What is the $0.03?
It's a combination of a number of things. One of the things was The Kartrite ramped a little better during the quarter than we had anticipated. That was one of the major things behind that. There's a number of things. It's kind of everything else besides what's indicated there. The Kartrite was the main kind of driver there.
Okay. Some of it is kind of organic and some of it just being the dollars out the door and the investment income. Is that?
Yeah. Dollars out the door, we're pretty consistent. We're raising our guidance $25 million at the midpoint, Investment spending is slightly higher. I just think we had better kind of performance, kind of driven by The Kartrite, particularly since that's an operating asset. It did a little better during the quarter than we had planned.
Okay. As we crush categories in education, it seems like there's almost three distinct businesses within the category. You commented a couple of times, I guess, about the pivot towards more experiential assets. How should we think about just education as we look out the next year or two? Could there be more sales candidates in that bucket? Do you want to be in all three of those subcategories? How are you thinking about that?
I think at this time, it's a fair question, Tony. I think we've clearly said that the charter, especially the charter school opportunity, is very competitive with the municipal bond market, and we don't see the risk-reward return for that. Right now, we're seeing that naturally come down with these sales. I don't know that we're prepared to talk about anything about accelerating that, but what we have said is, at least for the foreseeable future, we're not going to be devoting a lot of time or investment dollars in that area, given that risk-reward equation right now.
Okay. If we, and I know you're not giving the 2020 guidance, but this did turn out to be a pretty heavy year in terms of dispositions and paybacks on mortgages and such. Do you think this level of portfolio recycling is something you would continue with into the future?
I think it's abnormally high this year. If you look at the Schlitterbahn asset, that's an asset that we had owned for 14 years. I think given the noise around that, we were happy with the outcome. We had always maintained that the value was there and what Cedar Fair paid kind of demonstrated that. Those, if you go back and look, I think our cost of capital is working now. We will probably be doing more dispositions in kind of portfolio improvement, but I don't think they're going to raise to near the level that we saw this year.
Okay. Can you walk through yields that you're achieving on the major types of investment buckets that you put capital into?
Yeah. I think consistent with what we've said, most of our properties are trading or again, kind of mid sevens to low eights. As we've said, on the coast, some of those kind of are a very thing that can get down to the low sevens or seven, then we're seeing theater transactions that are trading below seven. In that space, given our cost of capital, that creates a very attractive spread. Given our relationships and Greg's work in this area, we've been able to harvest a lot of those opportunities and continue to be excited about those that are being presented to us.
Are your build-to-suits at those same kinds of levels, or?
Oh, they're generally, as always, they're generally gonna be 50 to 100 basis points wide of that, just to accommodate for the risk associated with kind of a build to suit.
Okay, great. Thank you.
Thank you, Tony.
Your next question comes from the line of Rob Stevenson from Janney. Your line is open.
Hi. Good morning, guys. Original Greg, in terms of lodging deals going forward, the first ones I think were in the resort was in a JV, Nashville's in a note. Is that likely to be one of those two type of structures likely to be how you approach lodging and I guess also possibly gaming going forward? Is there a value and is there a likelihood that you're gonna wind up having this stuff on balance sheet as an ownership position at some point?
Sure. First of all, Rob, it's the only time I've been called the original OG, so that's-
Yeah. We got to get that sweatshirt.
That's nice. I'm gonna take advantage of that. I actually think if you look at our portfolio, we have all three. If you look at what we did at like Pagosa Springs, that's in a lease. If you look at what we did here in Nashville, it's a mortgage. I think what you will see us be either in the lease or the mortgage. Our preference is to be in the lease. There are certain times where for tax reasons or otherwise, that may not be work. What we wanna be is in a fixed income-like instrument, as opposed to the variability of the hotel REIT model. To go back, our preference will be to the triple net lease and be in that fashion. Occasionally we may have mortgages. I doubt you'll see us a significant amount in the hotel REIT model.
Okay.
That would also apply for the casino space, which is another question.
Oh, yeah. I think if we were in the casino space, it would be in the net lease space.
Right.
In a lease structure.
Okay. This quarter, the Regal exposure went up. How comfortable are you in continuing to increase the exposure overall to movie theaters? Sort of do you guys have, at this point from a diversity standpoint, not specifically to AMC or Regal operator-wise, but just how much you guys are sort of willing to do at the upper end in terms of theaters within the portfolio?
Again, like I said, I think we've always said if we can find high-quality theaters, we like that business. It's been a very, very stable business for us for 22 years. Last year, we set an all-time record in box office. I think we like the space. It's not as much exposure to AMC, Regal, or Cinemark. It's about finding the right asset with really good coverage. Often, this involves theaters that have been recently renovated. If we like the trajectory, we like that exposure, and we'll continue to invest in that space.
All right. Last one from me. How many Topgolfs do you still have under construction? Are there any more behind this in the pipeline?
I think we have, I don't want to speak out of turn, but a couple.
We just put one in service.
Okay.
I think that was our last.
As we've said, we pretty much see almost every Topgolf opportunity. Not because the opportunities aren't good, but because we are managing exposure a little more selective. I would think that we will have Topgolfs in the future as part of that, and that will continue. It probably won't be as robust given the level of where we have the exposure, but we will selectively add new assets to our portfolio when we think the opportunity is really strong.
Okay. Thanks, guys.
Thank you.
Thank you.
Your next question comes from the line of Brian Hawthorne from RBC Capital Markets. Your line is open.
Hi. On the lease expiration schedule in education, the ones that are due, the $12-point whatever million that's due this year, is that all tied to CLA?
Yeah.
Yeah. That's the eight that were left as of quarter end. We had taken that number down from 17, as you saw last quarter, down to eight. Since that time, another four have been converted. Those are moving from kind of near-term leases all the way to subsequent to 2038. That's exactly what that is. Those should, by the end of the year, that should be zero.
Okay, great. With Topgolf going public, I know you just said it's not your investment, so it won't be as robust with them. Potentially going public, I guess, does that change your ability to invest in them at all?
Again, I think, remember, our limitation is a self-imposed limitation on an exposure. I think we'll just have to evaluate. Whether or not they go public is probably not as big an issue in that. I mean, clearly, people will have a view to their profitability at that point, but trust me, we have that view already because we get kind of those level of financial details. It's really kind of managing exposure, which we set kind of when they were the only participant in this type of space. What may change some of that is as more operators get in there and there is more ease of transferring operations and different operator options, we may take a broader view of that.
Okay. Thanks for taking my questions.
Thank you.
Thank you.
Your next question comes from the line of Joshua Dennerlein from Bank of America. Your line is open.
Morning, guys. Just give me one big picture from me. How comfortable are you with your tenant industry concentration? Your levels are, I guess, relative to peers, pretty high.
I think generally speaking, we feel really good about the experiential sectors that we're in. If you look in any metric, what we're spending on these type of expenditures as opposed to traditional retail is doing nothing but accelerating. As compared to some of our competitors who are more focused in the retail space, we actually think we're more well-positioned, and that the durability of that is going to only become more valuable.
All right. Thank you, guys. That's it for me.
Your next question comes from the line of John Massocca from Ladenburg Thalmann. Your line is open.
Good morning.
Morning, John.
I know you kind of commented a little bit already on the Margaritaville investment you made during the quarter, but maybe how much of the Margaritaville's kind of underlying revenue is tied to kind of rooms? I'm just trying to think, is there another revenue driver there besides some of the traditional kind of lodging drivers that maybe is kind of going to be underlying the interest payments to you guys?
Yeah, I think there's a significant F&B component to this. There's a rooftop kind of bar lounge. Like I said, there's a lot of activity planned there. I think this is not at all positioned as kind of the traditional business traveler. This is tapping into what we think is an exciting and dynamic entertainment district, and that there's not only a lot of activity in the actual lodging offering, but there's a lot of activity going in and around the area, which is kind of significantly driving demand for what we think is this experiential or lifestyle brand.
Okay. Then you commented on it a little bit, but to the extent you can you maybe provide some more color on the LTV on the loan? I mean, is it sub 50 or lower than that? Just kind of how you guys got comfortable, maybe on the security of the interest?
I think again, I think what we would say is that on a relative to appraisal, that in that 55%-65% range, we feel very comfortable in this space.
Okay. Then given the commentary on the severance charge, what are maybe some of the non-experiential assets or investment verticals that you guys are moving away from?
What we've talked about, John, pretty openly, is that we're spending less and less and not devoting resources to the charter school space. There's no doubt that our focus is more and has continued to trend more toward the experiential assets for the reasons I said earlier about whether it's broadening the diversity of our product or the durability of that product as we've seen. You look at, like I said, at a number of studies correlated to the economy that these assets actually outperform others. It's primarily in what I would say broadly the education space, but more specifically in the charter school space.
Okay, the other two kind of sub-verticals would still be giving investments, or is education in general kind of being moved away from?
Again, I think it's primarily in the charter school, because even in the other two, those are long-term leases. There is a lot of focus that we've had, like I said, in the charter school space and the turnover in that and the termination fees and the volatility that that brings. Whereas in the other space, the other parts of our education, those are long-term leases without that volatility. There's not a municipal bond market in those other two spaces. I would say it's right now focused in the charter school space.
Okay, understood. Sorry if you guys already commented on this, I know you talked about the education assets that were on kind of near-term lease expirations, maybe the three theater assets, any potential there for re-leasing, or how you guys feel about those assets going forward? I know it's a relatively small number, just any commentary.
Yeah. Two of the three were already extended in the fourth quarter.
Okay, perfect. That's it for me. Thank you.
Thanks, John.
Again, ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. Your next question comes from the line of Colin Meeks from Raymond James. Your line is open.
Thanks. Good morning, everyone.
Morning, Colin.
Hey, Colin.
First one, just a big picture question, Greg. You've made a point in the past of just how focused you are on data, and I'm just curious, just recognizing the broader tailwinds for your experiential focus, are there any subsets where maybe you've seen some weakness or as you've done more due diligence on, again, we've spoken in the past a lot about potential areas of future growth, that you've maybe decided to take a step back from engaging in? Just kind of curious as you paint this broader brush around experiential, just some more nuanced trends you might be picking up on there?
Yeah, to date, it's been, like I said, really strong. We're always trying to underwrite the downturn, so trying to see how things operate. I think where we are at least, not concerned, but aware and following is the higher price point activities. If you think about the movies, they're almost counter-cyclical. A lot of these things are low-cost alternatives, and so we're very closely aware of where the various price points of the offerings that we have. As you move up into higher points of what the cost of the activity is, that you see some more correlation to economic downturn as opposed to counter-cyclical.
Got it. Okay. That's helpful color there. I just wanted to go back to Rob's question earlier, just recognizing it was much smaller, but just curious what the other mortgage investment on the recreation front was during the quarter. Just as you look at your pipeline, just how many other kind of mortgage investment opportunities are currently in the pipeline? Is there anything of the magnitude of Margaritaville?
The other mortgage investment was a fitness center in Kansas City that we invested in, a Genesis fitness center.
I don't think there's a significant Like I said, a lot of these are tax-motivated as a way to manage that issue. If you look at these mortgages, they often have escalators and everything else that kind of read like leases. You can get a lot of tax efficiency by using that structure.
Like Greg said, we target leases, we use mortgages in cases maybe there's a tax issue. Like he said, we try to structure those just like leases. It's hard to predict the mix, we certainly have done a lot more leases than we've done mortgages, and expect that trend to continue, I think.
Okay. Thank you.
Thanks, Colin.
I am showing no further question at this time. I would now like to turn the conference back to Mr. Greg Silvers.
Again, thank you all for your time this morning. We appreciate you guys all tuning in, and we look forward to seeing many of you at Nareit and talking to you again on our fourth quarter call. Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.