Earnings Call Transcript
EPR PROPERTIES (EPR)
Earnings Call Transcript - EPR Q2 2022
Craig Evans, Executive VP
Thank you, Chris, and thanks, everyone, for joining us today for our second 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 is 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 is 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.
Gregory Silvers, Chairman and CEO
Thank you, Craig. Good morning, everyone, and thank you for joining us on today's second quarter 2022 earnings call and webcast. During the quarter, we delivered meaningful growth in top-line revenue and earnings, along with consistent collections in our scheduled deferrals. These results reflect the strong consumer demand for the experiences our tenants offer and the continuing resurgence of the experience economy. Since our last call, theater exhibition has continued to build strong momentum, anchored by the mega hit Top Gun: Maverick. Patience paid off handsomely for Paramount Pictures as they delayed the title several times, recognizing that theater exhibition was essential in maximizing revenues for the title. We are also pleased by the strong results produced from several titles and genres that appeal to a broader set of the population, demonstrating that additional age cohorts will return to the theater if relevant content is offered. We look forward to the remainder of 2022 as theater exhibition continues its positive momentum and regains its position as the dominant form of out-of-home entertainment. Additionally, many of our other experiential properties continue to perform at or above 2019 levels. While consumers are faced with uniquely high inflation, we have yet to see any material inflationary impact on attendance at our properties. And we believe we will continue to be well positioned as our properties offer the key attributes of lower price points and easily accessible locations across the U.S. and Canada. Turning to our investment spending, we are pleased to accelerate our pace of deployment into attractive investments with solid economics, utilizing our cash on hand. We acquired several unique and top-performing properties, which fit our regional experiential profile. These investments also demonstrate our ability to leverage our long-term commitment to experiential assets and deep relationships in the industries into quality investments. Our focus on continued growth and diversification is supported by the strength of our balance sheet and our cash flow generation. As our recovery continues, we're delivering sector-leading earnings growth, a well-covered monthly dividend, and a strong long-term growth profile. Our in-place portfolio is delivering solid performance, while our strategy of identifying and executing on quality investments should deliver superior returns. By continuing to execute on this strategy, we believe we will create meaningful shareholder value, which is not currently reflected in our share price. Finally, we are pleased to announce that we are raising guidance for our 2022 FFO as adjusted per share. This reflects our increased earnings power and strong recovery of our tenants. Now I'll turn the call over to Greg Zimmerman to talk more about our portfolio.
Gregory Zimmerman, Executive VP and CIO
Thanks, Greg. At the end of the second quarter, our total investments were approximately $6.6 billion with 358 properties in service and 97% leased. During the quarter, our investment spending was $214.9 million. 100% of the spending was on our experiential portfolio and included 3 acquisitions, build-to-suit development, and redevelopment projects. Our experiential portfolio comprises 284 properties with 47 operators and accounts for 91% of our total investments, or approximately $6 billion and at the end of the quarter was 96% occupied. Our education portfolio comprises 74 properties with 8 operators, and at the end of the quarter, was 100% occupied. While broadly there is increasing uncertainty and concern around inflation and the possibility of a recession, historically, our value-oriented drive-to destinations have proven to be more resilient in times of recession because they provide a compelling value proposition for families. To date, we have not seen meaningful impact from inflation or gas prices, and our expectation is that this will be the case in the event of an economic slowdown. Now I'll update you on the operating status of our tenants. Q2 total box office was $2.3 billion. Total North American box office for the first half of the year was $3.7 billion. Our high-quality theater portfolio continues to outperform the industry. Second quarter box office was boosted by 4 blockbusters: Top Gun: Maverick; Doctor Strange and the Multiverse of Madness; Jurassic World Dominion; and Sonic the Hedgehog 2. At $650 million in box office, Top Gun is now the ninth highest grossing North American film of all time. Year-to-date, 12 films have exceeded $100 million in North American box office. And during Q2, 12 films grossed over $40 million in box office, demonstrating a broad return to theaters by consumers. At $1.132 billion, July was the highest grossing month since December 2019, led by Minions: The Rise of Gru; Thor: Love and Thunder; Top Gun; Elvis; and Nope. Three quick data points. Minions: The Rise of Gru has grossed more than $320 million to date, which shows families with young children still want to see films in the theater. We are encouraged by the performance of Elvis, a traditional biopic with no branded IP, which is reaching multiple generations and has grossed $129 million to date. In each week of July, 4 to 5 titles grossed $10 million per weekend versus only 1 to 3 during the first half of the year, which again demonstrates the broadening recovery. August and September results will be muted with few releases anticipated to generate $100 million. However, Q4 is anchored by 4 major releases: Avatar: The Way of Water; Black Adam with Dwayne Johnson; Shazam!; and the Marvel Universe film, Black Panther: Wakanda Forever. The consumer is returning to the theater. The results demonstrate that all ages of moviegoers still want to see good films on the big screen. As mentioned on our last call and discussed in multiple media reports over the past several months, we don't have a demand issue; we have a content supply issue. Box office numbers will continue to improve as studios increase the number of films flowing to theatrical release. Turning now to an update on our other major customer groups. I would like to point out that in the Q2 supplemental, we moved 3 properties from Experiential Lodging to the category which best categorizes their key demand driver. Because they are both anchored by indoor water parks, we moved Camelback Indoor Waterpark hotel and the Kartrite Resort & Indoor Water Park to Attractions. We moved the Springs Resort in Pagosa Springs, anchored by natural hot springs, to fitness and wellness. The recently acquired Villages Vacances Valcartier is reported in Attractions. We continue to see positive trends across all segments of our drive-thru, value-oriented destinations. In Q2, we saw continued good performance across Eat & Play throughout the country with portfolio-wide double-digit year-over-year revenue growth. We are particularly pleased with the performance of our latest Topgolf locations. As attractions began to reopen for the summer season, we saw revenue growth and performance generally at or above 2021 levels. We are seeing significant year-over-year growth in attendance and revenue at our cultural properties. The attendance and revenue performance at the Springs Resort in Pagosa Springs remained strong. And as a result, we are working on an expansion. Revenues are nearly at pre-pandemic levels at our fitness assets. Q2 begins the ski off-season. As previously mentioned, several of our properties are undergoing capital improvements. Alyeska Resort, the premier Four Seasons Resort in Alaska, has 76 named ski trails, mountain biking and hiking trails, the Nordic Spa, the Alyeska aerial tram, and the award-winning Seven Glaciers restaurant at Top Mount Alyeska. It's benefiting from strong summer travel demand in Alaska. And after the close of the quarter, we closed on an additional $25 million in financing for Alyeska. Revenue growth continues across our experiential lodging portfolio with strong growth in ADR. We are pleased with the performance of our RV resorts. Our education portfolio continues to perform well with year-over-year increases in revenue, EBITDAre, and attendance across the portfolio. Attendance improved 15% in private schools and 19% in early childhood education. Turning to a quick update on capital recycling. We have executed contracts of sale for 4 of our 5 vacant theaters, which we expect to close in either 2022 or 2023. We are discussing the fifth with multiple parties. During the quarter, we announced the acquisition of 2 well-known assets in Canada for $142 million: Villages Vacances Valcartier in Quebec City, Quebec; and the Calypso Waterpark in Ottawa, Ontario. Valcartier is an iconic 4-season attraction destination and resort covering 225 acres and offering indoor and outdoor water parks and winter attractions, such as tubing and sledding, over 600 campground sites, and a variety of food and beverage options. The resort includes the Hotel Valcartier, a 4-star modern hotel with 163 rooms, and the internationally renowned Hotel de Glace ice hotel. Calypso Waterpark is the largest themed water park in Canada, covering 350 acres with 35 water slides, 2 lazy rivers, and the largest wave pool in Canada. As noted on the last call, during the second quarter, we also acquired our third RV resort, the Cajun Palms RV Resort in Breaux Bridge, Louisiana, between Lafayette and Baton Rouge in a joint venture with Northgate Resorts, a premier RV resort operator. EPR owns 85% and our gross investment exceeds $60 million. The joint venture that holds this property assumed third-party debt of $38.5 million that matures in 2034 and is attractively priced at a blended rate of just over 4%. We're making substantial progress on our investment pipeline. To date in 2022, we have funded $268.3 million for acquisitions, refinancing, and new development projects in Attractions, Ski, Eat & Play, Health and Wellness, and Experiential Lodging. We expect to fund an additional approximately $24.8 million on announced projects during the balance of 2022. Cap rates are around 8% and should create compelling long-term value. We're maintaining our 2022 investment spending guidance range of $500 million to $700 million. We feel good about our investment progress as we move through 2022. Consumers continue to engage in experiential activities, and operators are growing. With our broad unparalleled experience and network in experiential real estate, we're ideally positioned to continue to take advantage of these growth opportunities. Finally, with the continued recovery in the performance of our properties, we will provide coverage metrics on next quarter's earnings call. I now turn it over to Mark for a discussion of the financials.
Mark Peterson, Executive VP 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. We had another strong quarter that exceeded our expectations. FFO as adjusted for the quarter was $1.17 per share versus $0.68 in the prior year, and AFFO for the quarter was $1.23 per share compared to $0.71 in the prior year. Now moving to the key variances. Total revenue for the quarter was $160.4 million versus $125.4 million in the prior year. This increase was due primarily to improved collections from certain tenants, which continue to be recognized in revenue on a cash basis or had previously received abatements. Scheduled rent increases, as well as the effect of acquisitions and developments completed over the past year, also contributed to the increase. This increase was partially offset by the impact of property dispositions. We are very pleased to report that all deferred rent and interest continue to be collected as scheduled. During the quarter, we collected $4.9 million of deferred rent from accrual basis tenants and borrowers that reduced receivables, leaving a balance on our books at June 30 of $12.1 million. We expect to collect approximately $10 million of this remaining balance over the back half of 2022. Additionally, during the quarter, we collected $4.7 million of deferred rent and $0.3 million of deferred interest from cash basis customers that were recognized as revenue when received and which were not included in our guidance. At June 30, we had approximately $119 million of deferred rent owed to us not on the books. This remaining balance is due over the next 5 years. Revenue from these customers will continue to be recognized when the cash is received. I will provide more on the expected cash basis deferral collections for the remainder of the year later in my comments. It is notable that through June 30, we have collected over $100 million of rent and interest from customers that was deferred as a result of the impact of the COVID-19 pandemic. I can assure you that we forgave very little rent or interest during the pandemic, but instead worked diligently with our customers to design repayment plans that worked for their businesses. We are now seeing the fruits of that work as our customers have experienced a strong recovery and are paying back their deferrals in addition to all of their current amounts due. Moving on, we had higher other income and other expenses of $8.9 million and $5.8 million, respectively, mostly due to the performance of the Kartrite Resort and Indoor Waterpark which was closed for a portion of the second quarter in 2021 due to COVID-19 restrictions, as well as from 2 theater properties that we operate. Mortgage and other financing income was $7.6 million for the quarter versus $8.4 million in the prior year. The decrease was due to write-offs of $1.5 million of accrued interest receivables and mortgage fees primarily related to our only investment with one Eat & Play borrower. Additionally, during the quarter, we recognized $9.5 million in credit loss expense primarily related to the same Eat & Play borrower. Note that credit loss expense is excluded from FFO as adjusted. The decrease in mortgage and financing income was offset by $0.3 million in deferral collections from a cash basis borrower and other smaller items. Percentage rents for the quarter totaled $519,000 versus $2 million in the prior year. The decrease versus 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 from 1 ski property. The $519,000 of percentage rents recognized for the quarter was less than the $1 million we had anticipated primarily due to an increase in a tenant's revenue threshold upon which percentage rent is calculated. This threshold is dependent on CPI and the magnitude of the increase was not anticipated in our plan. This issue impacts a couple of other properties as well, and I'll have more on its impact on our percentage rents for the year when I discuss our revised guidance. Finally, equity and income from joint ventures totaled $1.4 million for the quarter compared to a loss of $1.2 million in the prior year. This is due primarily to increased revenues at 2 Experiential Lodging properties in St. Pete Beach, Florida that are performing well in addition to income from our new investment in the Cajun Palms RV Resort in Louisiana. In addition, due to the recent renovations completed and the performance at the St. Pete Beach properties, during the quarter, we were able to refinance the nonrecourse secured debt at these joint ventures based on a significantly higher valuation, increasing the debt amount from $86 million to $105 million and lowering the interest rate. We received $6.7 million in proceeds as a result of this refinancing after reserve fees and cash left in the joint ventures. I'd like to take a moment to point out a couple of other items in our supplemental. First, due to our increased investment in joint ventures, we added a summary of unconsolidated joint ventures on Page 18, which includes our carrying values, earnings, and debt terms. Second, due to our customers' recovery from the impact of COVID-19 this quarter, we have begun presenting our portfolio detail by annualized adjusted EBITDAre versus contractual cash revenue. This allows us to include managed properties and joint ventures and is a better method for allocation than using contractual cash revenue that had made sense to use when we were impacted by the pandemic. You will see this change on Page 21 of the supplemental, including the reclassification of certain properties that Greg discussed. Note that the allocation percentage shown for Eat & Play is impacted the most by this change due to picking up the property operating expenses at our entertainment districts versus previously showing it by contractual cash revenue, which included CAM reimbursements with no expense offset. 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 3.3x, and both interest and debt service coverage ratios at 3.8x. Our net debt to adjusted EBITDAre was 5.1x and our net debt to gross assets was 39% on a book basis at June 30. Lastly, our common dividend continues to be very well covered with an AFFO payout ratio for the second quarter of 67%. Now let's move to our balance sheet and capital markets activities. 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 almost 6 years with no scheduled debt maturities until 2024. We had over $168 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. Furthermore, we expect to generate over $150 million of operating cash flow after payment of dividends in 2022. As you can see, our balance sheet is very well positioned to fund our investment opportunities. We are pleased to be increasing guidance for 2022 FFO as adjusted per share to a range of $4.50 to $4.60 from a range of $4.39 to $4.55. We are confirming our guidance on investment spending of $500 million to $700 million and disposition proceeds of $0 to $10 million. Before concluding, I would like to give some additional details regarding 2022 guidance. The increase in the midpoint of our FFO as adjusted per share guidance of $0.08 from $4.47 to $4.55 is due to $0.07 of deferral collections from cash basis customers during the second quarter and $0.05 of other favorable items, including improved performance expectations at our managed properties. This is partially offset by a reduction in percentage rent guidance of $0.04 at the midpoint, primarily due to an increase in revenue thresholds for certain customers that are dependent on CPI increases, as I mentioned earlier. Also, we continue to expect percentage rent to be weighted to the fourth quarter, with third quarter expected to be consistent with second quarter levels. We are continuing to exclude any future collections of rent deferrals from cash-basis customers in our guidance given the uncertainty of collections. Such amounts booked as additional revenue, to the extent received over the last 6 months of 2022, could represent as much as approximately $6 million or about $0.08 per share of earnings for each of the third and fourth quarters. Guidance details can be found on Page 24 of our supplemental. Lastly, I'd like to comment on our capital plan for 2022. We continue to be in an enviable position in this turbulent market with low leverage, over $168 million of cash on hand at quarter end, nothing drawn on our $1 billion line of credit, no scheduled debt maturities until 2024, and expected operating cash flow after dividend payments of over $150 million for 2022. This means we can be opportunistic as to when and how we access additional capital, depending on our level of investment spending. Now with that, I'll turn it back over to Greg for his closing remarks.
Gregory Silvers, Chairman and CEO
Thank you, Mark. In closing, as you've heard today, our portfolio continues to strengthen. Our investments are ramping and our balance sheet is well positioned to fund this growth. We believe this unique combination will continue to drive earnings outperformance and create shareholder value. With that, why don't I open it up for questions. Operator?
Operator, Operator
Our first question comes from Anthony Paolone of JPMorgan.
Anthony Paolone, Analyst
My first question relates to the investment pipeline, and you talked about, I think, about an 8% yield that you're seeing out there. I was wondering if you could talk a bit more about what is particularly attractive to you right now, where you're seeing the most deal flow, and how that 8% flexes up or down based on different types of products.
Gregory Silvers, Chairman and CEO
Sure. I’ll let Greg add to this afterward. Tony, I would say it's practically universal. We are noticing good opportunities, and I think Greg will agree. Our deal pipeline is as strong as it has ever been. The variations we see depend on whether it's development, redevelopment, or acquisitions. I would tell everyone that it is taking longer to finalize deals due to third parties, such as lawyers, inspections, or title companies. They seem to be facing staffing challenges like everyone else. However, we are excited about both the debt opportunities and the variety we are observing. Greg, would you like to add anything?
Gregory Zimmerman, Executive VP and CIO
Yes. Tony, I would agree with what Greg said. I think that the dislocation in the debt markets is helping us a bit. And absolutely, when we're looking at a development project, we're expecting a higher yield. We're seeing strength across virtually all of our verticals and have multiple deals in discussion in virtually all of the verticals. And obviously, we're not, as we've said many times, looking to increase any theater exposure.
Anthony Paolone, Analyst
Okay, got it. And then any changes to the contractual bump structures that you're getting in leases these days? And also, can you remind me if you have any sort of uncapped CPI in the portfolio at this point?
Gregory Silvers, Chairman and CEO
We do not have any uncapped arrangements in place. We are working to increase the limits from their previous range of 1.75% to 2% to between 2.5% and 3%. However, we recognize that having uncapped CPI exposure can create significant pressure on our tenants. Every tenant we have is expressing concerns about the uncapped component. Nonetheless, we are exploring the possibilities within these limits. Greg, do you have anything else to add?
Gregory Zimmerman, Executive VP and CIO
No, I think that's right. And certainly, every lease is a discussion. Tenants certainly understand that inflation is an issue. So we're getting better at increasing the caps, as Greg said, but not uncapped.
Operator, Operator
Our next question comes from Nicholas Joseph of Citi.
Nicholas Joseph, Analyst
You talked about the 4 of the 5 vacant theaters under contract. What's the broader market for occupied theaters today, especially if the box offices have bounced back a bit in the second quarter?
Gregory Silvers, Chairman and CEO
I still think there is a market for underperforming or non-occupied theaters. Most of our non-occupied ones are being considered for alternative use. I don't believe there are many people selling high-quality theaters, and we haven't observed much of that in the market yet. As we progress through this year, we’ve consistently stated that we expect the market to improve, and you will start to see some activity in 2023 as everyone adjusts and realizes that this industry is going to recover. However, we’re not currently witnessing many good theaters changing hands. But Greg, you may have additional insights on that.
Gregory Zimmerman, Executive VP and CIO
Yes, I completely agree. I mean, occasionally, we'll get a teaser for what we would consider a lower quality theater. But they're few and far between, Nick.
Nicholas Joseph, Analyst
Thanks, that's helpful. And then just on the credit loss write-off, what was unique about that tenant versus the performance you're seeing really across the rest of your Eat & Play portfolio?
Gregory Silvers, Chairman and CEO
What we experienced was primarily one Eat & Play operation that resembled a Grubhub model, which underwent significant leadership changes and challenges. This situation is unique compared to anything else we are observing. This was the only asset of that kind we had, and the leadership turmoil effectively brought the business to a halt. Therefore, we haven't made further investments in that area, and we do not plan to.
Operator, Operator
Our next question shall come from Todd Thomas of KeyBanc Capital Markets.
Todd Thomas, Analyst
Just a couple of questions around the guidance. Mark, a lot of helpful detail around the quarter and the outlook. But a question for you, outside of the $0.07 related to the out-of-period collections, from cash basis tenants, are there any additional nonrecurring items or run rate adjustments that we should think about moving from 2Q to 3Q, anything that impacted FFO as adjusted in the quarter?
Mark Peterson, Executive VP and CFO
I wouldn't say so. We excluded the credit loss. We don’t anticipate the bad debt write-off to persist, so mortgage financing income should return to historical levels, along with any new investments and their impact on that line item. The increase in guidance is primarily the $0.07. We’ve seen improved performance at our managed properties, including Kartrite and theaters, but especially at the unconsolidated joint ventures, which is significantly helping. This is offsetting, as we indicated, the decline in percentage rents due to the threshold issue I mentioned.
Todd Thomas, Analyst
Okay, that's helpful. And so the $0.07, that's $0.06 in rental revenue and then $0.01 in mortgage and other financing income. Is that where those adjustments will take place?
Mark Peterson, Executive VP and CFO
Yes, it's not quite $0.01, and it's a little higher than rent, but in total it's $0.07, and you're right, most of it is in rent.
Todd Thomas, Analyst
Got it, okay. And then in terms of investments, I guess, it sounds like you're seeing a lot more product come to market and the pipeline is fairly healthy here. As we think ahead, and I realize you're not providing '23 guidance, but investment spending is forecast to ramp up here in the back half of the year a little bit. Would you expect to see that level of spend continue into '23 as you look ahead?
Gregory Silvers, Chairman and CEO
Again, Todd, you said it correctly. We're not going to give guidance now. I will stick with what I said earlier. Our pipeline is very robust. And as Greg said, I think there's a lot of capital constraints in the market right now with people, whether it be on the debt side or they don't like their cost of equity. We really think deals that had potentially moved away from us are coming back. So we're seeing good opportunities. And I think, as Mark talked about, our balance sheet has positioned us to kind of take advantage of some of this. So I think we like where we're positioned. And as we have announced, there are development and redevelopment projects that are going to carry into 2023 already on the books. So we're getting back into that rhythm of what you saw kind of pre-pandemic where we start projects, and we begin the year with a significant amount of carryover. But all I can say is we like kind of where we're positioned right now and stay tuned for what we do next year.
Todd Thomas, Analyst
Okay, that's helpful. And just last question, Greg, for you. I think in your prepared remarks, you commented that you've yet to see any material changes to performance at the company's properties related to inflation that consumers are facing. Are there any categories or segments of the portfolio where you're seeing some impact? And where would you expect to see the greatest sensitivity moving ahead if there was going to be some potential moderation in performance or traffic?
Gregory Silvers, Chairman and CEO
I believe Greg should address this as well. The first indication we might notice would likely come from our Experiential Lodging properties. These are where we can observe changes in average daily rates almost daily as demand begins to decrease, which we haven't experienced yet, but I anticipate might happen. In our Attractions properties, the season is concluding, so my guess is we will see some changes there. Looking ahead into the winter months, we will focus on our ski properties to assess any effects. However, we keep an eye on our entire portfolio. From what I've seen in previous economic downturns, not all recessions behave the same way, but historically we've noticed some reductions in food and beverage spending. For example, while people might still attend movies, they may cut back on concession purchases, or they might get fewer items at our Eat & Play venues. Those are certainly the areas we will continue to monitor, Todd.
Operator, Operator
Our next question shall come from Rob Stevenson of Janney Montgomery.
Robert Stevenson, Analyst
One for Greg, how much of the investment spending in the second half is likely to be development or redevelopment where the earnings impact is immediate versus straight acquisitions?
Gregory Silvers, Chairman and CEO
I'll let Greg, but I think we're going to be looking at kind of a nice combination of both. Again, as Mark indicates, we've got really, really good earnings growth and being able to identify the right projects, which we think drive the highest kind of reward for the risk. Well but I would say there is a substantial amount of development and redevelopment in there. But Greg, maybe...
Gregory Zimmerman, Executive VP and CIO
I think that's well put, Craig. Yes, I don't have anything to add.
Robert Stevenson, Analyst
Okay. Because I'm just trying to figure out how much is in the earnings impact for the back half of the year versus whatever you want to call it, an earn-in for '23 where they really don't start producing much revenue until then, and the earnings impact is more '23-oriented than back half of '22. So just trying to figure.
Mark Peterson, Executive VP and CFO
Let me comment. Obviously, the build-to-suit really, you're just kind of having capitalized interest, so not a whole lot of earnings impact this year, more next year when it comes online. With respect to acquisitions, I would tell you we've been conservative in how we've laid that into the back half, such that the further you put it particularly to fourth quarter, you're not having as much impact this year as you will next year. So we've been fairly conservative as we thought about the timing of acquisitions.
Robert Stevenson, Analyst
Okay. And then a couple of other things for you, Mark. I mean the Eat & Play credit loss, is that just a write-off? Or is there a path to recovery or a control of an asset or anything there? Or is it just a straight write-off at this point?
Mark Peterson, Executive VP and CFO
Well, they continue to owe us the amounts. But frankly, if we thought we were going to recover it, we probably wouldn't have written it off. So I think with respect to the write-off, the $1.5 million, we probably will not recover that, although we'll continue to pursue it. And then with respect to the credit loss, that's just a matter of going out and getting it appraised at the collateral value and booking it to that number.
Robert Stevenson, Analyst
Okay. And then lastly for me, regarding the guidance, did I correctly hear that there is no deferred rent that you haven't collected in the first six months included in the guidance for the second half of the year, so that means it's all upside?
Mark Peterson, Executive VP and CFO
No. The first six months of the year are counted once we receive them, so the $0.016 in Q1 and the $0.07 in Q2 are included in our guidance. The forward number, which could be as much as $0.08 per quarter, is not included in our guidance. Additionally, there is more risk associated with that, and we do not provide guidance on it.
Robert Stevenson, Analyst
Okay. And then how much have you collected in July? Was that anything material? Or is that essentially 1/3 of the $6 million? Is that about $2 million a month?
Mark Peterson, Executive VP and CFO
Again, we're not giving guidance on that, and we're probably not going to talk about a forward quarter at this point.
Operator, Operator
Our next question comes from Joshua Dennerlein of Bank of America.
Joshua Dennerlein, Analyst
I guess you mentioned the Education portfolio in your opening remarks. I guess, maybe stepping back strategically, how are you thinking about that? Curious to kind of your latest thoughts on how that fits into your strategy going forward?
Gregory Silvers, Chairman and CEO
Sure, Josh. We've previously discussed viewing it as a performing asset that is doing well, as Greg pointed out. As we've mentioned, including Mark, we don't require capital at the moment. While it could potentially be a source of capital, it doesn’t align with our long-term strategy. These are assets that many net lease competitors own. If we enter next year and find our cost of capital unfavorable or believe we can achieve better returns by recycling those assets, we see that as an opportunity. However, since it is currently performing well and we have enough capital, we don't feel the need to sell those assets at this time. Yet, it remains an opportunity for us to recycle capital as we progress through this recovery.
Joshua Dennerlein, Analyst
Okay, great. And then the bad debt expense, that $1.5 million. Is there anything else in guidance as far as bad debt for the rest of the year?
Mark Peterson, Executive VP and CFO
Well, you noticed that's not in my reconciliation of our guidance for the year. That's because we budget a certain amount of bad debts, and this certainly fit within what we budget for a year. So it didn't really affect us because we do budget some reserves for bad debt.
Operator, Operator
Our next question shall come from Michael Carroll of RBC Capital Markets.
Michael Carroll, Analyst
Greg, you highlighted in your prepared remarks that the studios need to produce more content to help the box office to further recover. I know the release schedule looks a little light if you look into the second half of this year. Are you starting to see studios reinvest into theatrical content to improve those schedules in '23, '24? I mean what's the outlook there?
Gregory Silvers, Chairman and CEO
Yes. We've observed some studios beginning to ramp up their film production. For example, Warner has announced an increase in their film output. We're noticing that it's not just the blockbusters; rather, it's the mid-budget films, typically in the $25 million to $50 million range, that were largely absent during the pandemic. It will take some time to fully bounce back. However, there is a strong belief that opportunities will arise as audiences return, spanning various age demographics. We're starting to see studios acknowledge this and adapt by discussing the production of a wider variety of films. Overall, we are optimistic about the progress we've seen so far.
Michael Carroll, Analyst
Okay. And then related to how interest rates are impacting, I guess, transaction values. I know that you highlighted that you're starting to see development yields tick higher. Are you seeing acquisition yields also tick higher? How is that being impacted?
Gregory Silvers, Chairman and CEO
Yes, I think it is. I think we're seeing it across the board. I think we always have demanded a higher yield for development or redevelopment. But I think across the board, I think in our size deals, probably the major driver of that is the cost of debt or the absence of debt for certain private groups to be active bidders. And so accordingly, with that movement, I think what's really interesting, and I'll ask Greg to comment, is probably in the last quarter, we've seen the idea of a lot of tenants and operators who've kind of capitulated that, yes, costs are really staying higher. And they were holding out thinking like we started kind of many times at the beginning of the year and saying, okay, this is the year that rates are going to go higher and then they don't. So I think the first half of the year where people kind of continue to fight that trend. And now it's kind of like if you want to grow the business, this is just the cost of doing it, and people are getting more comfortable with that. But Greg, maybe you have more color on that.
Gregory Zimmerman, Executive VP and CIO
Yes, I think it's been about 6 months of conversations starting with the cap rates that have been compressed and people starting to have price discovery and coming back and talking to us. So yes, I think in general, we're seeing cap rate expansion across all of these verticals.
Mark Peterson, Executive VP and CFO
If you listen to the prepared comments, at the beginning of the year, we probably would have said 7% to 8%. We're now thinking around 8%. So that kind of tells you what we're seeing.
Michael Carroll, Analyst
Okay. So you're roughly 50 basis points higher, you're seeing cap rates broadly increase for developments and acquisitions?
Gregory Silvers, Chairman and CEO
Yes, that seems reasonable. While it suggests a level of precision that varies from deal to deal, it is likely a good estimate.
Mark Peterson, Executive VP and CFO
When examining the equity pickup, depreciation at FFO for this quarter is approximately $3.4 million when considering our FFO from the joint venture. Overall, we are performing very well in terms of trends. The second and third quarters represent our peak earnings season for the joint venture, so we can expect higher earnings in those quarters and lower earnings in the first and fourth. Generally, we are very pleased with our joint ventures. We currently have about $47 million in carrying value. Our FFO for the year is likely in the 6% to 9% range, suggesting a mid- to upper double-digit return on equity. The performance is strong, especially for the St. Petersburg properties, where our average daily rates are at record highs. Additionally, the RV parks are also performing well. While there is some seasonal fluctuation, we're seeing positive returns on a levered basis.
Joshua Dennerlein, Analyst
Can you remind us what the long-term plans are for those properties? Do you plan on keeping them in the TRS, or are you eventually going to sell them to a tenant and put them in a triple net structure?
Gregory Silvers, Chairman and CEO
I believe part of the challenge is that we have redeveloped almost all of these properties, resulting in significant improvements. We will see, as Mark mentioned, that we are achieving mid-level returns of around 15% to 16% from net leases. The question becomes where that will settle and how we assess the relative value when choosing structure over yield. However, we will not have a large portion of our portfolio in this area. Nonetheless, we see this as a valuable aspect, particularly in an inflationary environment, as it allows us to capture some potential upside.
Gregory Zimmerman, Executive VP and CIO
And Greg, I would say just to echo the 2 RV parks and the 2 hotels, we've improved or are in the middle of improving all of them substantially with development dollars.
Operator, Operator
Next question is from John Massocca of Ladenburg Thalmann.
John Massocca, Analyst
Just a quick question on the cash deferral collection. Is that expected to be pretty evenly weighted between 3Q and 4Q? And then I guess as we look into 2023 does the collection schedule change remarkably at all?
Mark Peterson, Executive VP and CFO
Yes. I believe that the third and fourth quarters will have similar levels of deferred rent collections. For the entire year, this suggests around $19 million for 2022 when considering the activity in the first and second quarters. Moving into 2023, since some larger tenants began making payments in the second quarter, the annualized figure for 2023 is projected to be closer to $27 million. This amount is expected to increase in 2023 based on the schedule. One tenant's payment is linked to EBITDAre, making it a bit challenging to forecast. However, the other payments are relatively predictable. The anticipated figures are approximately $27 million for 2023, around $27 million again for 2024, $26 million for 2025, and then a decline as we approach 2026 and 2027. Nevertheless, the collection should remain in the mid-20s range for the next three years. It's important to note that if we switch to accrual accounting at any point during this period, we could see a significant one-time increase, but that would not affect future earnings. The timeline for switching to an accrual basis is critical here. Additionally, as we've mentioned before, there are inherent risks with these deferrals, and if we were given the option to collect everything upfront or in one payment, we would consider whether a discount would be acceptable. These are the projections, but I want to stress that they could have implications for future earnings.
John Massocca, Analyst
That's very helpful. And then in terms of percentage rent, and I think obviously for the remainder of the year, it's pretty clear from your guidance. But if we do see CPI moderate at all in the back half of this year or in 2023, I mean how does that impact the percentage rent outlook? Broadly speaking, we're not looking for exact numbers.
Mark Peterson, Executive VP and CFO
We have two tenants affected by this situation; one has a few properties, and the other has one property. Most of our percentage rents from other tenants are not linked to CPI. The threshold increases when the rent increase goes up. In this specific instance with these two tenants, particularly one is set to increase by either a certain percentage or CPI, and with CPI being higher, it had an effect. We only booked $500,000 in percentage rent this quarter, mainly due to that one tenant. So, if CPI were to rise beyond current levels, it won't significantly impact that tenant. The other affected tenant has several properties with a five-year increase that is also tied to CPI but has a cap. While it exceeded our expectations, it is capped and not strictly based on CPI. Overall, I don't anticipate a major impact on percentage rents moving forward from this year's level, which stands at approximately $8 million, even if CPI rises further.
John Massocca, Analyst
Okay. For the percentage rent outlook this year, was there any impact from weaker-than-expected performance by some percentage tenants, or was it mainly due to adjustments in calculations?
Mark Peterson, Executive VP and CFO
Yes, I believe it was mainly a threshold issue. We had anticipated one tenant for this quarter based on 2019 levels, but they performed slightly below that. So there was a volume concern, but the threshold issue was the main factor.
Operator, Operator
Thank you. This will conclude the Q&A portion of the conference. I would now like to turn the conference back to Greg Silvers for closing remarks.
Gregory Silvers, Chairman and CEO
Thank you, everyone. We appreciate your time and attention. Look forward to talking to you next quarter. Have a great day. Thanks.
Operator, Operator
This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.