Earnings Call Transcript
EPR PROPERTIES (EPR)
Earnings Call Transcript - EPR Q3 2022
Operator, Operator
Good day, and thank you for standing by. Welcome to the ERP Q3, 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Brian Moriarty, VP of Corporate Communications. Brian, you have the floor.
Brian Moriarty, VP of Corporate Communications
Thank you, Stacy, and thanks to everybody for joining us today on the EPR Properties third quarter 2022 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. I'll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995 identified by such words as, will be, 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 these contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings included with the company's reports on Form 10-K and 10-Q. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and the 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, which is www.eprkc.com. Now, I'll turn the call over to Greg Silvers.
Greg Silvers, Chairman and CEO
Thank you, Brian. Good morning, everyone. And thank you for joining us on today's third quarter 2022 earnings call and webcast. In the third quarter, we delivered healthy earnings growth as we continue to see resilience in our customers' businesses amid sustained consumer demand for the experiences provided by our customers. Additionally, we have yet to see any meaningful impact on demand from inflationary pressures. Today we're also reintroducing rent coverage disclosures. As Greg will highlight, we believe this data demonstrates the strength of the recovery of our non-theater properties while providing a baseline for our theater portfolio. Even as the recovery is still taking shape, our overall rent coverage is above the 2019 pre-pandemic level. Our theater coverage demonstrates that consumers want to see films in theaters, and as studios ramp up their production schedules, we anticipate that coverage will improve as well. In 2019, we introduced our strategic focus on properties which support the experience economy. While we could not have foreseen that our properties would have been tested so severely by a pandemic, we believe the experience economy is alive and well, and our investing thesis remains intact, as evidenced by the variety of properties we are highlighting today and have discussed throughout 2022. We are uniquely positioned to gain access to and pursue the broader set of experiential properties within our target set. Everyone is painfully aware of the disruption in the capital markets, and our job as stewards of capital is to be prudent with its deployment. As a result, we've decided to moderate our growth in the near term in response to our increased cost of capital. This moderation is not a reflection of fewer opportunities; rather, it is our discipline given current conditions. We will not grow simply to get larger; rather, we will demand earnings accretion with our investments. We continue to generate significant excess cash flow, which combined with our undrawn line of credit will support a more limited investment spend without sacrificing our investment-grade credit. Lastly, it's clear that the Cineworld restructuring and the broader market turbulence have combined to create a significant dislocation of our stock price. Our current stock price earnings multiple is significantly discounted relative to historical levels, even as we are paying a well-covered dividend that is supported by our free cash flow. As we pursue a resolution with Cineworld, we remain focused on the fundamentals of our business. We appreciate the support of our investors who are focused on the fundamentals, and we look forward to delivering strong total shareholder return over the long term. Now I'll turn it over to Greg Zimmerman, who will cover the business in greater detail.
Greg Zimmerman, Executive Vice President and CIO
Thanks, Greg. At the end of the second quarter, our total investments were approximately $6.6 billion with 356 properties in service and 97% leased. During the quarter, our investment spending was $82 million; 100% of the spending was in the experiential portfolio and included the acquisition of a project for redevelopment and additional financing for an existing asset. Our experiential portfolio comprises 282 properties with 47 operators and accounts for 91% of our total investments, or approximately $6 billion, and at the end of the quarter was 97% occupied. Our education portfolio comprises 74 properties with eight operators, and at the end of the quarter was 100% occupied. Well, broadly, there is increasing macro uncertainty and concern around inflation and the possibility of a recession, we believe our value-oriented drive to destinations will prove to be resilient because they provide a compelling value proposition for families. To date, we have not seen meaningful impact on our operators from inflation or gas prices, and our expectation is that this will be the case in the event of continuing challenging economic conditions. As noted last quarter, with a stabilization of our portfolio after COVID, we are reinstituting coverage disclosure; we thought it would be helpful to compare our most recent coverage data. The most recent data is based on a June trailing 12-month period except for attractions, which is August, and ski, which is April as noted on the slide. Importantly, overall portfolio coverage exceeded 2019. Overall portfolio coverage for the trailing 12 months is two times compared to 1.9 times for 2019. For theatres, trailing-12 month coverage is 1.3 times with Box Office at $7.1 billion for the same period. In 2019, theater coverage was 1.7 times with $11.4 billion in box office. For the non-theater portion of our portfolio, trailing 12-month coverage is 2.8 times compared to 2.2 times for 2019. Now I'll update you on the operating status of our tenants. Q3 total box office was $1.9 billion; total North American box office for the first three quarters was $5.6 billion. Our high-quality theater portfolio continues to outperform the industry. As mentioned on our second quarter call, at $1.13 billion, July was the highest grossing month since December 2019, led by Minions - The Rise of Gru, Thor - Love and Thunder, Top Gun: Maverick, Elvis, and Dope. As expected, due to lack of tentpole product, August and September results were muted, with no releases generating $100 million. Q4 is anchored by three major releases: Black Adam with Dwayne Johnson, which has grossed over $115 million since opening on October 21; The Marvel Universe film Black Panther: Wakanda Forever, filming November 11; and Avatar: The Way of Water opening December 16. The 2023 slate is beginning to take shape. The top five announced titles, each of which could exceed $200 million in North American box office, include Ant-Man and the Wasp, Guardians of the Galaxy III, Little Mermaid, Captain Marvel II, and Aquaman II. As this year's results demonstrate, when there are movies to see, consumers of all ages are returning to the theater; they still want to see good films on the big screen. With studios recognizing the economic benefit of a theatrical run, and more films beginning production post-COVID, we are confident supply will improve. Finally, as previously disclosed on September 7, 2022, Cineworld filed for bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas. While we did not receive September rent, or September deferred rent, we did receive our entire October and November rent payments along with the October and November deferred rent payments. This week, there have been headlines in the press suggesting that Cineworld reached a bankruptcy settlement with its landlords and lenders. Without mentioning EPR specifically, this appears to have created the impression that we and Cineworld's other landlords have resolved any discussions about leases with Cineworld. While we can't speak for other landlords, we are in the early phase of discussions with Cineworld and have not reached any agreements of any kind. The settlement referred to by the media was limited to the approval of a modified and improved $1.9 billion debtor-in-possession or DIP financing, which included several protections sought by Cineworld's landlords. In addition, Cineworld agreed to pay its landlords a portion of the unpaid post-petition September stub rent over four months. This settlement did not address issues regarding assumption or rejection of leases, future rent, or the future management and operation of properties. Because the bankruptcy process is ongoing, beyond those updates, we will not comment about Cineworld. Turning now to an update on our other major customer groups. We continue to see good results and ongoing consumer demand across all segments of our drive to value-oriented destinations. Our eat-and-play assets continue their strong post-pandemic performance with portfolio revenue up 15% and EBITDAre up 9% over Q3 2021. Through much of our attractions and cultural portfolio, attendance and EBITDAre are up over Q3 2021. We are particularly pleased with the performance of our recently acquired Canadian Parks, Villages Vacances Valcartier and Calypso Waterpark. Construction of the hotel at Glace Ice Hotel will begin in the coming weeks with openings scheduled for January 4. We continue to see extremely strong occupancy and continued ADR growth at the Springs Resort. Based on reported solid season pass sales, we are anticipating a good ski season. During the offseason, lift replacements were completed at five of our assets. Revenue growth continued across our experiential lodging portfolio with continued ADR growth. We are seeing uplift from our renovations at the Beachcomber and Bellwether Beach Resort in St. Beach. We prepared for the impact of Hurricane Ian at both properties, but when the path shifted, we avoided any significant damage. We celebrated the grand opening of the second phase of our successful Camp Margaritaville RV Resort in lodge in Pigeon Forge, Tennessee and are making progress with the planned enhancements at our Jellystone Park Warrens and Cajun Palms RV Resort. Our education portfolio continues to perform well with year-over-year increases of 17% in revenue, 28% in EBITDAre, and 24% in enrollment across the portfolio. After the close of the quarter, our early childhood education tenant, Crendal Crumm, which operates 21 of our early childhood education assets, was acquired by Kinder Care. We view this as a positive credit enhancement. Turning to a quick update on capital recycling. During the quarter, we sold two vacant theatres and a vacant land parcel for total net proceeds of $9.9 million and recognized a combined gain of $300,000. We have executed contracts of sale for two of our three remaining vacant theaters and expect them to close in 2022 or 2023. We continue discussions with multiple parties on the third theater. During the quarter, our investment spending was $82 million. We closed on the acquisition of a former conference center in Marietta, California for approximately $43.6 million in a sale leaseback transaction. Marietta is in Riverside County, midway between Los Angeles and San Diego. The asset has natural hot springs and was originally developed in 1902 as a Hot Springs Resort and operated for many years as a wellness center. In partnership with the operator of our very successful Springs Resort in Pagosa Springs, Colorado, EPR will invest approximately $50 million over the next two years to redevelop the existing buildings into a brand new Hot Springs Resort. As discussed on last quarter's call, in Q3, we also closed on an additional approximately $26 million in financing for our premiere four-season Alyeska Resort in Girdwood, Alaska. After the end of the quarter, we closed on the acquisition of additional land in Pagosa Springs for the expansion of the Springs Resort for approximately $5.6 million. EPR is committed to invest an additional approximately $58 million over the next two years for the expansion. And finally, again, after quarter end, we closed on a commitment with a new partner to provide up to $68 million in long-term mortgage financing to fund the addition of an indoor waterpark as part of the expansion of an existing project. We are excited about the opportunity and will share more details after our new partner has publicly announced the project. We've made substantial progress on our investment pipeline coming out of the COVID pandemic. Cap rates are around 8% and should create compelling long-term value. We're pleased with the investment cadence and diversity we will achieve through 2022 and beyond. We are seeing a lot of high-quality opportunities to fund build-to-suit redevelopment and expansion projects in many of our experiential categories. By their nature, redevelopment and expansion projects tend to stretch over several years, and as a result, there is a timing lag for capital deployment after commitment. We're updating our investment spending guidance for funds deployed in 2022 to a range of $375 million to $425 million. Through the end of Q3, we have funded over $321 million for acquisition, refinancings, and new development projects and eat-and-play attractions, ski, health and wellness, and experiential lodging. In addition, with transactions that have closed through October 31 that are not yet funded, we have committed an additional approximately $250 million for experiential development and redevelopment projects to be deployed over the next two years. Finally, given our cost of capital and the current inflationary economic environment, we have consciously decided to reduce our near-term investment spending and to fund those investments primarily from cash from operations and with our borrowing availability under our unsecured revolving credit facility. We are being more judicious with future investments and acquisitions to shepherd capital until economic conditions improve and our cost of capital returns to historical levels. Among the positives of our focus on development and redevelopment investments is that we restarted our investment pipeline in 2022, resulting in increased revenue in 2023 and 2024 as they fully come online. I now turn it over to Mark for a discussion of the financials.
Mark Peterson, Executive Vice President and CFO
Thank you, Greg. Today I will discuss our financial performance for the quarter, provide an update on our strong balance sheet, and close with updated 2022 earnings guidance. FFO adjusted for the quarter was $1.16 per share versus 86 cents in the prior year, and AFFO for the quarter was $1.22 per share compared to $0.92 in the prior year. Now moving to the key variances, total revenue for the quarter was $161.4 million versus $139.6 million in the prior year. This increase was due primarily to improved collections from certain tenants which continued to be recognized in revenue on a cash basis or had previously received abatements. As to Regal, we received all rent and deferral payments for July and August, but as Greg mentioned, we did not receive the rent or the deferral payment for September. Also contributing to the increase for the quarter was scheduled rent increases as well as the effect of acquisitions and developments completed over the past year. This increase was partially offset by the impact of property dispositions. During the third quarter, all deferred rent and interest was collected as scheduled, except Regal's September deferral payment that I just mentioned. We collected $4.5 million of deferred rent from accrual basis tenants and borrowers that reduced receivables, leaving a balance on our books at September 30 of $7 million. We expect to collect approximately $5 million of this remaining balance in the fourth quarter. Additionally, during the quarter, we collected $4.6 million of deferred rent and $0.8 million of deferred interest from cash basis customers that were recognized as revenue which were not included in our guidance. At September 30, we had approximately $123 million of deferred rent owed to us not on the books, which will continue to be recognized only as cash is received. Regal makes up approximately $92 million of this balance and is subject to the bankruptcy negotiation that Greg mentioned. I will provide more on cash basis different collections as I want to review our updated earnings guidance. Moving on, we had higher other income and other expense of $3.3 million and $1.3 million respectively due to the improved performance of the Kartrite Resort & Indoor Waterpark, and to the theater properties that we operate. Mortgage and other financing income was $9.6 million for the quarter versus $8.5 million in the prior year. The increase was primarily due to $0.8 million different collections from a cash basis borrower I mentioned previously. Percentage rent for the quarter totaled $1.5 million versus $3.1 million in the prior year. The decrease versus the prior year related to less percentage rent from an early education tenant based on a restructured lease which has higher base rents in 2022. This was partially offset by higher percentage rents recognized from our Golf Entertainment tenant. G&A expense increased by $1.4 million versus the prior year, primarily due to an increase in payroll and benefit costs, including stock amortization, as well as an increase in travel expenses and professional fees. Lastly, FFOs adjusted from joint ventures increased by $2.1 million versus the prior year to $2.7 million. This was due primarily to the performance of our investment in the Jellystone RV Park in Wisconsin, that was purchased in late August of 2021, and our new investment in the Cajun Palms RV Resort in Louisiana. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be strong with fixed charge coverage at 3.2 times, and both interest and debt service coverage ratios at 3.8 times. Our net debt to adjusted EBITDAre was 5.2 times and our net debt to gross assets was 39% on a book basis at September 30. Lastly, our common dividend continues to be very well covered with an AFFO payout ratio for the third quarter of 68%. Now let's move to our balance sheet, which is in great shape. At quarter end, we had consolidated debt of $2.8 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%. Additionally, our weighted average consolidated debt maturity is 5.5 years with no scheduled debt maturities until 2024. We had over $160 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. We are revising our guidance for 2022, FFOs adjusted per share to a range of $450 to $468 from a range of $450 to $460, reflecting an increase of $0.04 per share at the midpoint. As shown on the slide, revised guidance at the midpoint includes full rental payments for Regal leases of approximately $7.1 million per month for October, November, and December. Note that our policy regarding deferral payments from cash basis customers is to include guidance only if already received. Accordingly, for Q4 we have included deferral payments of $1.5 million per month, received from Regal for October and November, and $0.5 million per month received from non-Regal tenants for October and November. The lower end of guidance, among other things, reflects the uncertainty of the timing and amount of rent for December from Regal, given its pending bankruptcy. The upper end of guidance, among other things, reflects the potential to collect additional deferral payments from Regal and non-Regal customers for December, not included in the midpoint, as well as the potential to collect a portion of Regal's September rent before year-end. With that background, I thought it'd be helpful to provide a reconciliation of the increase in the midpoint of our FFOs adjusted per share guidance of $0.04 to $0.0459 from the prior midpoint of $0.0455. As you can see on the slide, the increase is due to including $0.12 of additional deferral collections for Q3 and Q4 from cash basis customers, all of which has been received today, which was not in prior guidance, plus $0.01 from an increase in expected percentage rents primarily from certain attraction properties, offset by nine cents for Regal's September rent. Note also that the midpoint of our guidance for the year implies an FFOA per share for Q4 that is similar to that of Q3. While we do expect an additional month of Regal minimum rent and higher percentage rents for Q4, this is expected to be offset primarily by seasonal losses at our managed properties and joint ventures. Finally, we are reducing our guidance for investment spending to a range of $375 million to $425 million, from a range of $500 million to $700 million. This is due primarily to the mix of deals being more skewed towards development and redevelopment, where we are finding better risk-adjusted returns versus acquisitions. As a result, we have approximately $250 million of commitments on closed experiential development and redevelopment projects as of October 31, that we expect to fund over the next couple of years. Given our strong balance sheet and liquidity, as well as our anticipated significant cash flow generation, we do not anticipate the need to raise additional capital to fund these commitments. Guidance details can be found on Page 24 of our supplemental. Now with that, I'll turn it back over to Greg for his closing remarks.
Greg Zimmerman, Executive Vice President and CIO
Thank you, Mark. As our quarterly performance indicates, the experiential economy continues to perform despite the headwinds of inflation. Our company rent coverage, driven primarily by our non-theater portfolio, is now above 2019 levels, and we continue to be pleased with the recovery of the exhibition business. Overall, we had a very productive quarter with strong results and quality investments. As Greg discussed, with approximately $250 million of future commitments, we are again demonstrating the depth of our investment pipeline. Yet we remain prudent in our capital deployment given the backdrop of challenging capital markets. Our confidence is grounded in the resiliency of the experiential sector and our ability to execute on our strategy. With that, why don't I open it up for questions?
Operator, Operator
Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Joshua Dennerlein at BofA. Joshua, go ahead with your question.
Joshua Dennerlein, Analyst
Yeah. Good morning, everyone. I'm wanting to kind of share a little bit more on, I don't know if there's any more you can kind of share on the discussions with Regal and how you're thinking about the bankruptcy and kind of risks to your assets.
Mark Peterson, Executive Vice President and CFO
Joshua, we are currently engaged in a legal process, and it's not appropriate for us to negotiate publicly without our partner involved. We believe our Regal portfolio is above average, supported by coverage indicating that the industry is on the mend. I appreciate your questions and concerns regarding a swift resolution and the desire for more details, but at this time, we are not in a position to provide further information until we progress further in this process.
Joshua Dennerlein, Analyst
Is there any way you can kind of handicap the timeframe that we might be able to kind of hear some further details on? Like how long do these processes typically take?
Mark Peterson, Executive Vice President and CFO
Again, I would love to tell you that there is a defined timeframe, but if anybody has been involved in bankruptcy before, the debtor has a lot going on. We know they have a significant number of landlords that they need to work with and work through. Again, I will tell you, we are wanting to resolve this as expeditiously as we can. But with that said, we're really not in control of the timeframe; they've got a lot of interested parties, both on their capital, their balance sheet side, as well as landlords that I think they're working through. What I can commit to you is as we get more clarity on our situation, we'll be glad to share that.
Joshua Dennerlein, Analyst
Okay, and how should we think about coverage as we head into Q3? Because I know it's a one quarter lag. Is that going to dip further just based on the commentary on, I guess, August and September?
Mark Peterson, Executive Vice President and CFO
I think that if you take a look at it, and this is something I'm going to quote from the industry unless Greg has anything to add. That was based on a $7.1 billion trailing 12 months. I believe most people expect that for the 12-month calendar year it will be above that figure, so the overall box office should be higher. Hopefully, that indicates better results than what we are currently showing. But Greg?
Greg Zimmerman, Executive Vice President and CIO
Yeah, absolutely. I think overall box office will be higher. And Joshua, if you look at the three films that are opening, Black Adam has performed extremely strongly out of the gate, and Black Panther: Wakanda Forever is getting rave reviews. So we anticipate a really strong end of the year.
Joshua Dennerlein, Analyst
Okay. I'll jump back in the queue. Thanks, guys.
Greg Zimmerman, Executive Vice President and CIO
Thanks, Joshua.
Operator, Operator
Next question comes from Nick Joseph with Citi. Nick, go ahead with your question.
Nick Darrant, Analyst
Thanks and good morning, everyone. So it's actually Nick Darrant for Nick Joseph right now. And the question is on those 8% yields, I think you mentioned. So is that across the whole portfolio? And then specifically in the experiential portion, how is that trending in '23 and are there any specific verticals that deviate from that 8%?
Mark Peterson, Executive Vice President and CFO
Greg, I'll let you take that.
Greg Zimmerman, Executive Vice President and CIO
Yeah, Nick. I think it's generally across all of our verticals, the 8% cap rate; some may be slightly under that, and some may be slightly over that. I don't think that we're seeing any meaningful compression in cap rates for sure in any of our verticals, and we're seeing slight expansion as the economy slows down. And again, we're not investing in any theater; we're focused on education, so all of our investments are in our experiential portfolio.
Nick Darrant, Analyst
Thanks. And then just on if you guys are changing your underwriting assumptions on future capital commitments, given where we stand right now. Any color on that would be appreciated.
Mark Peterson, Executive Vice President and CFO
I think, and I'll let Greg comment as well, we've always approached these very conservatively. Again, we never really took into consideration what you would call the bump of whether you call it revenge spending; we were underwriting to what we think our long-term trends are. I think there's always, as we go into a challenging environment, you probably add a tinge more conservatism. But remember, we're generally leasing these for 15 to 20 years, so you're looking at this over a prolonged period of time in multiple economic cycles. So you're always going to have standard deviations from your mean underwriting that you want to look at and stress those. But Greg?
Greg Zimmerman, Executive Vice President and CIO
No, I think that's well put.
Nick Darrant, Analyst
Thanks.
Mark Peterson, Executive Vice President and CFO
Thanks, Nick.
Operator, Operator
Our next question is coming right up. Next is Anthony Paolone with JPMorgan. Anthony, go ahead with your question.
Anthony Paolone, Analyst
Okay. Thank you. And good morning. I guess just first on Regal, can you give us what the annualized or monthly scheduled rent is? I know you gave like kind of a per share, and we can kind of back into a rough number. But just to kind of make sure we have the right figures there.
Mark Peterson, Executive Vice President and CFO
Yeah, it's about $7.1 million in terms of regular rent, and the deferral payment previously was about $1.5 million per month.
Anthony Paolone, Analyst
Okay, in that 1.5, that relates to, I think, the $92 million you said that they kind of owed and that they were chipping away at? Is that what that is?
Mark Peterson, Executive Vice President and CFO
Yeah, correct.
Anthony Paolone, Analyst
Okay, got it. Just want to understand it. And then just second, with regards to thinking about the guidance in the swing factor for the rest of the year. I guess, a $31 million difference between the $123 and the $92 related to Regal. Is any of that factored into the guide?
Mark Peterson, Executive Vice President and CFO
Sorry, I'm not following what number you're referring to?
Anthony Paolone, Analyst
Yeah, I think you said.
Greg Zimmerman, Executive Vice President and CIO
Yeah, I think Tony, if you look at the slide with what's factored in the guide; Mark, I thought did a really good job of telling people what's in and out of the guide. So the rent is in, but the deferral for December is not in.
Anthony Paolone, Analyst
Right.
Mark Peterson, Executive Vice President and CFO
I understand what you're saying. We expect the $71 and added the $15, and you're talking about the whole thing. Yeah, we tried to lay that out. As Greg said on the slide, where October and November regular rent and deferral payments are in the guide that we got subsequent to the end of the day or, and then regular rent for December but not the deferral payment, because our policy with respect to deferral payments is to not include until we have them in hand.
Anthony Paolone, Analyst
Okay, I understand. Just sorry, I probably wasn't being very clear. Just beyond Regal now, just with the other potential deferred rent you might correct sort of the rest of that $123 million outside of Regal. None of that is contemplated in the guide right now.
Mark Peterson, Executive Vice President and CFO
So you see right below that on the same slide, non-Regal deferral payments. We did include a $0.5 million in October and a $0.5 million in November that we've already received. There could be another $0.5 million for December that's not in our guidance, part of the upside from the midpoint. But that's right, right below that you see the non-Regal cash basis deferral payments on the slide, that's in line.
Anthony Paolone, Analyst
Okay, I understand. For the final question, you mentioned that yields are around 8% and have been stable for some time. However, you also noted that you have been reasonably disciplined regarding bid-ask spreads. I'm curious about what would prompt you to invest more capital. Is it at a nine or a half, or what is the current size of that spread for you?
Greg Silvers, Chairman and CEO
I think, Tony, and I'll let Greg comment on this as well. We're very focused on what I would call relationship transactions where we're supporting our existing tenants. Again, it's probably not that quarter point, but also what we feel will fuel future growth as we move forward. Greg and his team are really good at negotiating kind of the ability to see a plethora of deals as we move beyond these turbulent periods. So we're focused probably not on that next quarter point, but what helps fuel our pipeline as we move forward, either through relationships or relationship agreements that give us access to more product as we get out of this turbulent period.
Greg Zimmerman, Executive Vice President and CIO
Yeah. Tony, I think that's absolutely correct. I mean, we're focused on this year, we are expanding Pagosa; we bought Marietta in conjunction with our partner at Pagosa. We did additional financing in Alyeska. And going forward, there's a lot of focus on either existing relationships or building new relationships. And I completely agree with Greg that it's more important to us than a quarter time.
Anthony Paolone, Analyst
Okay, great. Thank you.
Greg Zimmerman, Executive Vice President and CIO
Thanks, Tony.
Operator, Operator
Our next question comes from RJ Milligan with Raymond James. RJ, go ahead with your question.
RJ Milligan, Analyst
Thanks, and good morning. We appreciate the updated coverage information. Greg, in the past, you've talked about the profitability of the Regal theaters relative to the other Regal theaters in the country. I was just curious if you could give any color on coverage levels for those specific assets or at least comment if they're running in trend with the rest of the portfolio and that coverage is above 2019 levels.
Greg Silvers, Chairman and CEO
The coverage levels are not above 2019 levels for all theaters. It's important to clarify that we have a strong Regal portfolio, so on average, our theaters are performing better than most. In terms of percentage, they are likely outperforming their box office share from 2019. Currently, we mentioned earlier that coverage is around a $6 billion breakeven level, and we anticipated being between $125 and $135 million based on box office projections. This reflects our understanding of the industry and where we expect to land. Additionally, it suggests that the theater business is healthier than perceived. Even at these reduced levels, many investors believed coverage was below one, but we are demonstrating that it is not necessary to return to $11 billion for a healthy portfolio due to its inherent strength. That's the key message we wanted to communicate.
Greg Zimmerman, Executive Vice President and CIO
And to be clear, RJ, the coverage is 1.3 times against that $7.1 billion trailing 12. And in 2019, it was 1.7 times against an $11.4 billion box. And as we said earlier, we do expect the box office to continue its publication through the year, the trailing 12 months number is probably a little low for the full year.
RJ Milligan, Analyst
Got it. And then we've heard from some of your peers more of on a one-off basis about the ability to retain some of these series. I'm just curious, what's the demand out there from either local operators or national operators to take on or re-tenant what were profitable locations?
Greg Silvers, Chairman and CEO
I believe the decision will vary by location. Greg and his team have effectively transitioned theaters to non-theater uses and have sold off properties for different purposes this year, as we've discussed in earlier calls. There will always be demand for good locations because most operators and studios anticipate a recovery in this business, which has been reinforced by recent announcements from many studios. The streaming model is essentially a substitute for traditional networks, highlighting the need for films to perform well in theaters to generate additional cash flow. As we've mentioned before, production is ramping back up to a sustainable level, and everyone has recognized its potential during this testing period. But Greg?
Greg Zimmerman, Executive Vice President and CIO
No, I think that's right. The only thing I would add is that Paramount just earlier this week reaffirmed that the best model for them economically is theatrical release to streaming.
RJ Milligan, Analyst
Great, thank you guys.
Greg Silvers, Chairman and CEO
Thanks, RJ.
Operator, Operator
Our next question comes from Michael Carroll with RBC Capital Markets. Mike, go ahead with your question.
Michael Carroll, Analyst
Yep. Thanks. I know last quarter, you guys were pretty optimistic about the 2023 box office. I know there has been some reshuffling with some Marvel movies being delayed and I think there's a Star Wars movie that was delayed. How should we think about that? Does that reduce the optimism for 2023, or is that just kind of normal things that we should typically expect, just given that we're so far out from some of those movies being released?
Greg Silvers, Chairman and CEO
There's a lot of changes happening, and to be honest, it's not ideal to see a major title pushed from one year to another. However, we are still in the early stages of assessing what 2023 will look like. We believe there is still potential for improvement. As we've mentioned before, the situation is getting better, though not rapidly; it's a gradual process.
Greg Zimmerman, Executive Vice President and CIO
Yeah, I'd say it's just take time to restart the pipeline. And clearly, Hollywood is in the midst of doing that. And I think you'll see continued ramp-up through '23 and '24, Michael.
Michael Carroll, Analyst
Great. I know Greg Zimmerman, you are kind of highlighting several movie titles. I mean, is there a good way for us to think about it, like how many tentpole type films do we need to see a quarter or a year for that to be good for a good box office this year? Or is there a way to think about that?
Greg Zimmerman, Executive Vice President and CIO
Yeah, probably the best metric is that we are probably down about 50% in total titles this year. So as that number of titles increases, box office will increase. That's the real issue.
Michael Carroll, Analyst
Okay, and I can just sneak one more in there. So can you talk a little bit about that coverage ratio highlighted? I know you have several tenants. I mean, historically, I think that EPR's line was that all your tenants were right around that average coverage number. I mean, is that true today? I mean, how big is that band of those individual tenants right around that average coverage number?
Greg Zimmerman, Executive Vice President and CIO
There's variation in performance among our properties, but overall, we believe that performance is fairly strong. When it comes to specific coverages, particularly regarding Regal, we prefer not to delve into that information, as it can be complex. However, the calculations we made in 2019 and our discussions at that time remain consistent with our current perspective.
Michael Carroll, Analyst
Great, thank you.
Greg Zimmerman, Executive Vice President and CIO
Thanks, Michael.
Operator, Operator
Our next question comes from John Massocca from Ladenburg Thalmann. John, go ahead with your question.
John Massocca, Analyst
Good morning.
Greg Silvers, Chairman and CEO
Good morning, John.
John Massocca, Analyst
So just to clarify, the high end of the new guidance range contemplates collection of all of the rent and deferral payments from cash basis tenants, correct? I did that right?
Mark Peterson, Executive Vice President and CFO
Yeah, that's correct. That's part of what contributes to the upside along with the fact we may get a portion of September's rent that we didn't collect yet.
John Massocca, Analyst
And if I'm thinking about this guidance, the high end versus prior guidance, what amounts of kind of cash rent and deferral payment was contemplated in that prior highest number?
Mark Peterson, Executive Vice President and CFO
Well, no deferral cash basis deferral payments were unless they had been received.
Greg Silvers, Chairman and CEO
We did not include deferral payments in our previous guidance at the end of June, as we only counted deferral payments through that point. Now, moving into the third quarter, we are including these payments because we want to discuss what we expect to receive after the quarter ends, particularly regarding Regal's. We are considering what we received through September, as well as October and November. The potential upside to our guidance now, since we are addressing post-quarter and deferral payments, primarily involves Regal's deferral of $1.5 million for December and an additional $0.5 million for non-Regal customers for that same month. Additionally, there is a September rent payment that we do not anticipate receiving in our midpoint of guidance, but there is a possibility we could receive part of that this year, which contributes to the upside. Furthermore, we have managed properties that could also affect the guidance, depending on whether their performance is high or low.
John Massocca, Analyst
Okay. Then switching gears a little bit, the Marriott California investment — apologies if I missed that in the prepared remarks, but how is that investment structured? Is that a net lease initially, or is that going to be in kind of a JV or operator model? Just kind of how are you looking at that investment from a structure perspective?
Mark Peterson, Executive Vice President and CFO
Yeah, John, it's a sale leaseback.
John Massocca, Analyst
That clears up. All right, that's it for me. Thank you very much.
Mark Peterson, Executive Vice President and CFO
Thanks, John.
Operator, Operator
That was our final question. So I would now like to turn it back over to Greg Silvers for some closing remarks.
Greg Silvers, Chairman and CEO
Thank you, and thank you, everyone, for your time and attendance. I want to reiterate, again, I appreciate and understand that we have a lot of questions that go on about our theater portfolio. But as we've met with many of you, we talked about the strength and resiliency of our non-theater, kind of experiential portfolio. And as these coverages today, we talked about those properties that are doing incredibly well. And that coverage indicates we're talking about moving from 22 to 28 overall, and remember, that still represents 62% of our portfolio. So with that, I appreciate your time and attention and we look forward to talking at our yearend call.
Operator, Operator
Thank you for your participation in today's conference. This does conclude the program; you may now disconnect.