All right. Good morning, everyone, welcome to the 9:15 A.M. session at Citi's 2023 Global Property CEO Conference. I'm Eric Wolfe with Citi Research, we are pleased to have with us EPR Properties and CEO Greg Silvers. As a reminder, this session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. As a reminder, the questions I'll ask today do not reflect the views of Citigroup or myself and are being asked for information purposes only. For those in the room or the webcast, you can sign on to liveqa.com and enter code GPC23 to submit any questions if you do not wanna raise your hand. Greg, I'll turn it over to you to introduce your team, give some opening remarks, and then we'll go into Q&A. Thank you. As Eric said, I'm Greg Silvers, President and CEO of EPR Properties. To my right is Mark Peterson, Chief Financial Officer, and to my left is Greg Zimmerman, Chief Investment Officer. For those who don't know, EPR is a REIT that focuses on what we call experiential properties. Again, properties where you really don't necessarily buy a good, but you go to experience that. We have a concentration in the exhibition theater business, but we also have 60% of our business in many names that you've seen and enjoyed, whether that's Topgolf, Vail, Six Flags. We think it's a very exciting time to be in experiential properties. If you look pre-pandemic, in our non-theater portfolio, we had around a 2.0 cover. Last quarter, we reported that our coverage in our non-theater was 2.7. The consumer is definitely supporting these properties. It's where people want to spend their money. We're very excited about the opportunity set that lays in front of us, that there is a really high growth profile in experiential properties, and we welcome the opportunity to discuss those with you guys today. Great. Thank you. We've been starting each session with the same question, which is: What are the top three reasons to buy your stock today? I think it's pretty straightforward from our perspective, value. We're trading at a historically low equity multiple. We think also we have a very well-covered dividend. We're generating over $100 million of free cash flow beyond our dividend. Fundamentally, what I talked about earlier is the growth profile that's presented in the experiential space that we have a unique ability to identify, underwrite, and close on deals. We think we're in an exciting space. We think there's a real value play for us, and we think you're paid to wait. Great. So you recently announced that John Case was gonna be joining the board. You know, I was just curious, obviously, has great experience, sort of hoping to understand what you know, like to get out of having him on the board, whether it represents any type of shift in an investment strategy from you or just trying to leverage his expertise. It's not a shift in our strategic objectives of experiential. It is really, you know, John's a well and a talented individual who has a vast knowledge of the net lease space. Again, somebody I've known and we've known for years. We thought he could add a lot of experience, expertise in this space. We think it will be a very much a value add to our overall board composition. Got it. I'm sure that you spent a lot of time this week talking about, you know, theaters, and you'd probably rather talk about some other things in your business. We'll start with theaters 'cause I know it's always sort of topical. You know, if I look at sort of other businesses that were impacted by COVID, you know, majority of them have sort of come back to where they were pre-pandemic. I guess my question is why do you think it's a little bit been slower for the theaters? If you look at sort of the major releases that are upcoming, do you think you can sort of get closer back to that level in 2024 and 2025? I think the answer is definitely. When you look at what happened to the theater business, it really is a content issue. As much as people want to think, I think the issue of the great streaming debate is over. You now have all the studios and all the content providers saying, "We don't make money releasing movies to streaming." In fact, we're pulling movies that were made for streaming back and releasing them into theaters. Whether it's Zaslav at MGM who said, "We didn't make a dime on any movie we released to streaming." Clearly it's a content, and if you look at just the numbers, we talk in terms of wide releases, and to give you a reference point, in two... In 2019, we had about 135 wide releases. Last year, we had 75. Part of that is just pure production. It takes a while to make movies, and it got shut down during COVID. Next year, we should have close to 95, we're improving there. 2024, between 110 and 120 that are already scheduled for release. We think comfortably box office is gonna get back somewhere in the $9 billion-$10 billion range for 2024. We're now talking about a 15%-20% kind of, 10%-20% kind of off the highs of the $11.3 billion. You look at what's going on in the space. In the space, we've had the average per cap F&B spend move pre-pandemic from about $4.20 to about $7.40 now. That's much higher margin business. On a pure EBITDAR basis, even at those lower box office levels, we may have exhibitors who actually make as much money because they're making more money on their high margin business. I think what's a real interesting discussion that we're having now is if the theater business is returning and it's going to stabilize, what we really have is traditionally we see in all kinds of venues, is we have two tenants who over-levered their balance sheets to complete M&A activity. They did major M&A activity prior to the pandemic with 80%-90% debt financing. That's created stress on their balance sheet, and they need to fix that. The fundamentals of if you own good theaters and the industry is returning, we see that industry is going to stabilize and that we will once again be enjoying the kind of coverage levels that we did pre-pandemic. On a per customer basis, your point is that the per customer, the margins are actually a bit better today than they were before, given higher ticket prices. That's correct. The real goal obviously is to get the volume back. You know, if you look at the sort of releases that are upcoming next year, I mean, part of what's been missing, I think, is just some of the smaller releases, getting that customer back. Yes. I mean, do you think from what you've heard that they'll be successful in that, getting that, you know, not just people that are showing up for the superhero film, but those that show up for the kind of more small to mid-size releases, that the content that's gonna be put out next year will be successful in bringing those types of customers back, getting that volume up so that it can support the sort of the higher EBITDA that you're talking about? I think it's really, again, back to content. You haven't had. We're gonna see some test runs. It's really about if you talk to people in the industry, it's the 55 and above cohort, which are generally driven much more by drama from a offering. We're starting to see more of that content being offered. Amazon is gonna release Air, t he Nike story. Originally, that was made for that was gonna be a streaming release. They pulled that. They're gonna release that into theaters prior to streaming. You also have Oppenheimer coming out. These are much more geared to that cohort of a demographic. We'll see when we get content flowing for that specific demographic, if they're going to come back in better numbers. If you don't have anything to show them, there's no reason for them to show up. We need to get the content flowing that is more directed at that demographic group. Gotcha. I guess assuming the fundamentals come back, the way you think, I mean, do you think that the sort of valuations for theaters will come back? I mean, obviously we just have higher interest rates than we did, you know, three years ago, so that's a change. You know, otherwise, you know, let's say Cineworld emerges from bankruptcy in June as planned. Their capital structure looks better, higher amount of equity. You know, do you think there'd be a market to be able to sell some of those assets, and where do you think they would trade? I think clearly there will come. If Cineworld emerges pursuant to their plan and they're 3.5 times levered, and they have a backdrop of a strong content flowing into this, again, there will be value and there'll be a market for it. There's. I think the major stress that we had is, and we talk about this, for years, we had the stress of, okay, streaming's coming, it's gonna. Well, we faced that, and now we're the challenges we're moving past, and once we have stabilization, fundamentally, theaters have been part of most net lease portfolios for a long time. It's just when we have these disruptions, something occurred, we got through the stress period, it stabilizes, it'll create a market for them. Got it. Assuming there's a sort of liquid market there, I know just in general, there's liquidity in the market's not great for transactions, but assuming there's liquid market, you know, if I think about your business, I think you guys said this before we came in, 60% of it's doing really well. This 40% gets a ton of attention. Just from that perspective, would you sort of consider calling the theater portfolio even though you like it? Or do you think would you rather just try to grow out of it, meaning that over time you continue to acquire and that just becomes a smaller percentage of the overall asset base? No, we've publicly said, you know, the only way we're gonna achieve our objectives is to sell theaters. It's not gonna be grow out of it. Yeah, you know, once we have a stabilized market, there is an opportunity to sell those assets. We'll look to lower that exposure. It's just not the right time now. Got it. Are you already preparing for that or no? Meaning like, reaching out to the... I mean, 'cause you kind of know what the capital structure is gonna be like, right? I mean, generally, for Cineworld post-bankruptcy, you have an idea of what it's gonna look like. Yeah. You have an idea of what the fundamentals will look like in six months. What I mean by prepare for it is sort of thinking through who the right buyers of those assets would be, whether you do maybe like a portfolio deal to try to get it done at once or, you know, maybe do it on a onesie-twosie basis. No, I mean, we know who the buyers are. I mean, again, it's pre-pandemic, we dealt in that world, so we know who those are. I think it's more about the capital market settling down. You know, with any sort of thing, being able to finance it is always first and foremost with someone. I think as we see stabilization in the underlying tenant base and, then we see capital market availability, then there will be an opportunity to deal with transactions. Got it. I guess on the flip side, what are you seeing the best acquisition opportunities today? I know you're constrained by your cost of capital, but you're still looking at things. Where do you see sort of the best risk-adjusted returns in this environment? If you look at what we did last year, we have eight categories in experiential that we really focus on. We invested in all eight of those. There's 10 categories that we list. We did a very minor cultural, and we didn't invest in gaming last year. The rest of the categories, we're seeing really strong opportunities. As we talked about, we had a $1 billion+ pipeline. We closed $600 million worth of transactions last year. These are organically growing businesses. As we said, the customer is heavily supporting them, so our tenants are wanting to grow their business, and we're seeing really good opportunities across the board. Greg, I don't know if you wanna comment on any specific area. Yeah. I think, we spent a lot of time curating things. A couple of the deals that we, got done last year, we worked on for three or four years, starting pre-COVID. We get a lot of, opportunities from referrals and from existing customers. Just to give you a couple of examples, in the fitness and wellness category, we have a really strong performing asset in Pagosa Springs, Colorado, a natural hot springs resort. Did very, very well during COVID, so we decided to expand and renovate that. With that same operator, we acquired a property in Murrieta, California, which is, you know, halfway between San Diego and Los Angeles, very strong demographics with natural hot springs that we're gonna convert into a natural hot springs resort. We, we acquired Valc artier in Quebec City, Canada. It's been around for 60 years, family-operated indoor water park. We also did a deal in Frankenmuth, Michigan, which is one of the top 10 tourist destinations in Michigan with 2 million people a year. Lastly, I would say we did a deal with Gravity Haus, which is a really unique new concept around ski hills. It's a combination of lodging, fitness and wellness, spa, fitness, and also co-working space, and good food. If you wanna come for a couple of extra days to Breckenridge, you can work from there. A lot of great opportunities we saw last year. Gotcha. That's, yeah, that's not a tough sell. That sounds pretty good. A couple days in Breckenridge. It's listed by Condé Nast as one of the top 10 places to stay in the entire West. You mentioned a couple industries in there. You know, you talked at the ski slopes, You're doing the hospitality space. I mean, as you, as you look across the different industries that you tend to invest in, can you maybe tell us about how sort of the acquisition team is set up, the expertise of some of the individuals within there? Do you have people that are singularly focused on, say, like, you know, water parks? 'Cause that would be different than some of the things you're doing on the fitness side, which would be some of the things different on the hospitality side. Just how you set that up, how you look at the specific industries, and how your underwriting criteria might be different for each one of them. Great. Yeah, a great question. Our acquisitions team probably, I never really thought about it in terms of years of experience, but probably something like 50 years' worth of experience between the four of them. We added a gentleman this year who has some experience in the lodging business, but candidly, he closed two deals which were not lodging. We try to have the best athletes, and, you know, from the underwriting perspective, I think we know a lot about all of our businesses, so, you know, we're able to underwrite the businesses pretty well. In terms of the actual deals, it's more about relationships. I would say there's not a lot of difference, generally speaking, between a water park deal and a lodging deal at that level. Again, we have a lot of experience in all these industries, and we do a very deep dive on them. As I said, a couple of these deals took three years. Eric, I would say, I will add to what Greg. Before we go into a space, we always do an internal white paper. These are generally 60 pages to 100 pages. Yeah. It defines what success looks like and where points of failure are. We have a kind of a grid of what we're looking for and what metrics are key driving metrics that guide our underwriting team, and we compare back against those. We're never again, when we're going into a space, we're not going into it blind and like when we're looking at gaming, we have probably one of the leading consultants in the industry that helps develop that matrix that we're going to look at. We're very thoughtful in how we approach any specific sector and where we think about what success and what points of failure look like and relative to the underwriting under that. I think Greg and his team do a great job of setting us up for understanding. And part of that, it feeds itself. As part of that research, we're actually meeting people in the industry, we're getting out, we're talking to people. Often that turns into transactions. Right. What, like, what's a sector that maybe you did a white paper on that, you know, just didn't meet sort of the criteria that you were looking for, couldn't sort of define that success? The greatest example that we can tell you, it doesn't mean that it's not gonna work for everybody, so again. We probably have 10 pickleball ideas that come into our office all the time, and we cannot, for the life of us, figure out. I mean, in essence, relative to the square footage you're using, it becomes a very big restaurant. 80%-90% of the money is truly just food and beverage. On a square footage basis and the productivity of it, we haven't been able to meet our requirements. Right. To give you an idea of one that actually works, we did a lot of research on the RV space for years, went to conferences, met a lot of operators, et cetera, et cetera. We did a deep white paper, did a first and second deals with operators, and then through that process, found another operator with whom we've been able to do two more deals, and they just heard about us through the meetings we went to in the industry. That's the way we develop relationships. Got it. Maybe on the RV, are those similar to sort of the transient, sort of seasonal RV like that we would see at ELS or Sun, or are they sort of a different type of property? Generally, what we would see is they're anchored to a, some sort of experience, meaning they're in and around either where there's something to go to other than, you know, park your RV. Whether it be mountains or water, lakes, things of that nature that create a better sense of destination. I think what you would see in most of what we've done is finding a property that needs to be amenitized. If you saw what we did in Cajun Palms, which is in Louisiana, in a very, lake, setting. We just relabeled it. Camp Margaritaville. Now it's a Camp Margaritaville. We stepped it up, and we've seen a really strong response by taking a very productive property and then amenitizing it to a level that greatly increases the productivity of it. Yeah. To give you an example, so, we have a Camp Margaritaville, so in, Pigeon Forge, Tennessee, so it's, you know, 10 minutes from Great Smoky Mountains National Park. It's amenitized, okay? It has a water park, it's got the Margaritaville brand, but it's also close to a national park. Then we have some Jellystone, in the Midwest that also have water parks, water features. To Greg's point, whenever we're investing, we're looking at ways to improve them with, experiential amenities. Got it. Just in terms of the competition you guys come up against, when you're doing deals, I'm sure it varies a lot by different space, but like, for instance, you did a $68 million mortgage loan to the Bavarian Inn Lodge. You know, is that something that they're just coming directly to you and you're just doing... Would they go to anybody else? Is there anybody else that does that? I don't even think they talk to anybody else. Here's the great example of how that occurred. They again, as Greg said, 75-year history, lots of things to do there. They wanted to add this element. They went out and talked to the actual product supplier of slides and things of that nature. As part of that product supplier said, "You know who you really need to talk to? Is EPR Properties." I got the call, just a random call from the family, four people on the phone, and said, "Hey, so and so said, we need to talk to you guys." I said, "Well, that's wonderful." Spent a time talking to them, turned it over to Greg and his team. I don't think it ever went anywhere in the market. That's the kind of deal flow. We make a living, as opposed to some other people here who are much bigger. We make a living out of $50 million-$150 million deals, you know? We find those deals that candidly, for a lot of people, it isn't worth their time. We got our size turns into advantage. If we do that group of deals, you know, $600 million for us is 10% net asset growth. That is very powerful given our size, and we really don't see. I would tell you for most of the big deals, we always get called on them. We always find out our interest. Most of the deals that we do, whether it's the biggest and best water park in Canada, never went to market other than a call to us. We've spent 25 years building our brand in that space, and we're generally a go-to call for anybody who is looking at exploring, that, this type of sale-leaseback financing. The one thing I would add, especially when it comes to something like the Bavarian, is we actually add value because it's not our first water park. So we have a lot of ideas that we're happy to share with the customer, whether it's, you know, about the location of the real estate or how big something should be or what kind of amenities there should be. Again, we have a lot of knowledge that we're happy to share, and I think our customers appreciate that. You know, a reference point to that, Eric, is we have a long relationship with Topgolf and there's a lot of other net lease groups that are now doing Topgolf. We still see every Topgolf deal before it goes to, I think, anyone else. We picked this last year as a reference point. We did San Jose, suburban L.A., and King of Prussia. We're really pleased with building those long, deep relationships that allow us to access what we think are really quality product. When you do these sort of $50 million to, call it, $150 million type mortgage financings, I mean, like in a case like the Bavarian Lodge, I mean, is it secured by the overall hotel? Hopefully, the water park, I guess, works, but in the case that it doesn't, like, what's the security behind it? How do you structure it to make sure that you have enough protection? It's secured by the overall hotel. At a conservative loan-to-value ratio. Yes. It's also not only do you have the security of the physical plant and equipment and the hotel, you also have a family-run business that they're very deeply committed. In that nature, it ended up being 60%? Yeah. 60% loan-to-cost. When you're able to do that with a very, very strong underlying commitment from the family, it feels like a very, very strong investment. It looks like you've sort of picked up some of your, you know, mortgage financings recently. Is there sort of a limit to the amount that you would do there? Just because I know that the public market doesn't always reward earnings that it dues or perhaps temporary and can go away at some point. I guess the second question that you mentioned on the call that there were some conversion rates on some of these. I was gonna mention that. A lot of those, like you see with some of the deals that we're doing, whether it's Gravity Haus and some things like that we have conversion rights. When there is development going on, there's a couple of reasons that that works. One, the security is actually better as a mortgage vis-à-vis other lien right holders construction. Second of all, you actually get the earnings of the cap rate as opposed to capitalized interest. I wouldn't interpret necessarily that it's going to be a mortgage for its entire life. It may be a mortgage buy and through construction, and then some period afterwards, we convert it more to a traditional kinda lease structure. Is that solely at your option? You pay some kind of extra amount? No, that's at our option. Okay. We also try to be flexible, you know, to meet our customers' needs. When we're doing mortgage financing, our view is it is a long-term investment. I understand we don't own the real estate, but we don't view it as a in-and-out thing. We try to build relationships and provide additional financing if, you know, as future needs arise. Is there extra capital you put in at the end to exercise the option? No. No. Okay. Got it. Could you help us understand sort of the earnings potential of the development and redevelopment program, probably not generating that much income today? I think in total, what do you have? About $175 million-$200 million or so of assets. Help us understand how much that's generating today versus what it could look like in, say, two or three years. Again, there is a lot of opportunity for development. What we're constrained by, Eric, right now is our free cash flow. Again, as I said, we think we're trading at a very depressed equity multiple. We're very mindful of really not issuing new equity. We're limited not by our opportunities, but you know, as I said earlier, we're generating over $100 million of free cash flow. When you look at it out there, as I said, we had a lot more opportunity, but we had to look at what we thought was the best risk reward, and some of those were development projects. As Greg talked about early, this opportunity in Murrieta, California, we had a very, very strong operator that we had done business with. We found this new opportunity. It's incredible real estate with a proven operator, and we felt like that was a better risk reward. We think those opportunities continue to be there. I mean, we're approached a lot about expanding things, so redevelopment, doing things at our existing properties. Candidly, we're limited by the capital constraints that we find ourselves under. In that $250 million, you know, we're capitalizing interest, and then it flips to the cap rate, of course. We lay that out in our supplemental as in terms of when the money's going out, but more importantly, when it goes in service, you get the, you know, the pop in, you know. Instead of capitalizing interest, it moves to the cap rate. Then, of course, that'll annualize even again in 2024 because we'll get the full year from the 2023s that go in service. There is some ongoing earnings potential. That's probably 200 basis points, something like 2, 250? Meaning, actually, you know, our debt rate is, like, 4.5%, long-term debt rate. That's what you capitalize at, and then it moves to 8.5%. It's pretty significant when it goes in service. Gotcha. I guess along that same line of thinking, we have a question from the audience. Could you just talk about your balance sheet management, how you're sort of preparing for higher rates for longer? Yeah. I think the good news is we had pretty good timing in our bond issuance in October of 2021. you know, we hit a 3.6% bond, took out maturities. Our first maturity, we have nothing due this year. $136 million due in 2024, pretty modest amount, $300 million in 2025. Our debt maturity laddering looks really good. As Greg mentioned, our ongoing cash flow is very strong. We took the opportunity coming out of the pandemic to reset our payout ratio to 70% or even less, right now it's in the high 60s. We're generating a lot of free cash flow, and we're able to reinvest that cash flow, you know, very accretively. Obviously, if you're doing 8.5 cap rate, and it's internally generated cash flow combined with a little bit of leverage, it's pretty accretive. That's kind of what we're focused on, not raising capital in this market with the displaced debt market and our equity multiple being low, just using that internal cash, and we've got plenty of it. Even, you know, last year, we generated in excess of $175 million of free cash flow over the dividend. Some of that was due to some deferral payments that don't repeat in 2023. We still, as Greg said, expect in excess of $100 million of free cash flow in 2023. Our leverage, you know, is in, we're in the fives, low fives, so we feel very good about that, and we're very mindful of that, you know, especially in this environment. We're really set up well to endure, I think, any coming storm, be it recession or soft landing and so forth, in terms of low debt maturities, strong cash flow, and not need to access in any meaningful way the capital markets. Gotcha. I wonder, I'll have to look at where they're trading, but is there any opportunity to buy back sort of in the market, sort of your debt or preferred, just based on where they're trading or? Yeah, we've looked at that. You know, it's always a sort. We look at is it better to buy or buy back stock or keep investing. I will tell you on the preferred side, it's hard to get any meaningful amount, frankly. That's somewhat similar. It takes a lot of time to accumulate. We do look at that. I think in our analysis, and we also look at buying back stock, but in our analysis, of looking at all that, it appears, doing the math, it's best to keep investing at the cap rates we're investing, continue the relationships with these tenants so they don't look elsewhere during the time if we decided to pull back, 'cause we do see the other side of this, and we wanna be there for them, you know, continue on with them as a customer. If you think about it, instead of shrinking, as we continue to invest, we'll continue to diversify our portfolio, lower that theater concentration. All things considered, we think, using that free cash flow to buy assets at the cap rate we're buying is the best use of capital. Great. Before we do the rapid fire questions we've been asking in each session, what's your top ESG priority this year? I think we're still focused on improving our tenant reporting. We have a lot of really, really ESG-aware tenants, whether that's Vail or Six Flags, that are doing a lot of things, and we're continuing to improve that so we can tell that story as a net lease REIT. I think we did a good job, a very good job with our initial Corporate Responsibility Report, and hopefully, we'll continue that path as we go forward. Got it. All right, so the rapid fire. What will same-store NOI be in 2024 for the net lease sector? I guess you can sort of include any sort of estimate around bad debt or rent reserves, rent loss. My guess is it still comes in somewhere 1.5%-2%. Okay. What's the best real estate decision today, buy, build, sell, hold, or redevelop? It's what Mark said. For us, given our cost of capital constraints, it still is buy. We think the buy opportunity is even greater if we can get back to a cost of capital. We think we can still locate incredible assets in this market at mid to eight cap rates. That's long-term. That seems like a very good proposition. Got it. Last question is, will there be the same, more, or fewer public companies in the net lease space a year from now? Again, I'm horrible with this prediction, so I'm just gonna say the same. You know, there's no good or I guess if we went back and looked at this, everybody's wrong, but I'll say the same. Sounds good. Thank you. Appreciate you. Thank you, sir. Thank you.