Earnings Call Transcript - EPR Q1 2021

Brian Moriarty, Vice President of Corporate Communications

Thank you, Alisha. Hi, everybody, and welcome. Thanks for joining us for today for our first quarter 2021 earnings call and webcast. Participants on today's call are Greg Silvers, President and CEO; Greg Zimmerman, Executive Vice President, 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 those 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, including the company's reports on Form 10-K and 10-Q. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the investor center page of the company's website, www.eprkc.com. Now I'll turn the call over to the company's president and CEO, Greg Silvers.

Greg Silvers, President and CEO

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's first quarter 2021 earnings call and webcast. Against the backdrop of the reopening of the US, we are seeing consistent improvements in our business fundamentals. Key among these includes accelerated cash collection levels and significant progress in our theater portfolio. Our increased cash collection levels reflect stronger businesses, and an increasingly more positive environment for the experiences our properties deliver. At a macro level, with the broad increase of vaccine deployment, we are seeing a meaningful improvement in consumer confidence and stabilization of the economy as evidenced by employment and GDP data. Separately, the new protocols from the CDC for fully vaccinated people reflect the opportunity to achieve increasing levels of normalcy, and life as we once knew it. Across our portfolio, consumers have been exhibiting their desire to experience out-of-home entertainment, and our tenants' businesses have been beneficiaries of this pent-up demand. In particular, during the quarter and continuing through April, consumers demonstrated their desire to return to theaters, as we achieved new box office highs since the onset of the pandemic. Importantly, this momentum has been established in an environment with capacity constraints, limited content, and direct-to-consumer streaming options which provide the opportunity to view select features at home. Said another way, even with the challenges and limitations of the current operating environment, these results indicate that consumers still value the theater experience for new movie titles. We look forward to being able to fully maximize the reopening of theater exhibition as we expect that 98% of our theaters will be open by the end of May, and consumers will have the opportunity to see a strong lineup of film titles for the remainder of 2021, many of which have been delayed several times. As we continue to manage the business, we remain laser focused on our goals for 2021, including our exit from covenant relief, reestablishment of a dividend and a return to sustained growth. During the quarter, we also made progress on our strategic capital recycling activities and utilized proceeds from dispositions and stronger collections to pay off the remaining $90 million balance on our $1 billion unsecured revolving credit facility. These steps of strengthening liquidity and optimizing the portfolio are supportive of our goals and should facilitate growth as we move into the second half of the year. This was an important quarter as we sustained ongoing positive trends and key business measures necessary for us to act on our existing debt covenant waivers. Most specifically, continued improvement of our cash collection levels. As I stated earlier, the trends appear to be very favorable at this point, including vaccinations, consumer demand, and exhibition recovery. Having positive momentum across all these areas should propel us forward toward the achievement of our goals. Now I'll turn the call over to Greg Zimmerman to discuss the business in greater detail.

Greg Zimmerman, Executive Vice President, CIO

Thanks, Greg. At the end of the first quarter, our total investments were approximately $6.5 billion with 354 properties in service and 93% occupied. During the quarter, our investment spending was $52.1 million entirely in our experiential portfolio. The spending included build-to-suit development and redevelopment projects that were committed prior to the COVID-19 pandemic, as well as the acquisition of a newly constructed Topgolf facility in San Jose, California for $26.7 million, which was acquired primarily with cash received from Topgolf as payment of a portion of their deferred rent balance. Effectively, we acquired Topgolf San Jose using a portion of their deferred rent as currency, a creative and complimentary outcome for both sides. Our experiential portfolio comprises 280 properties with 42 operators and is 93% occupied, and accounts for 91% of our total investments, or approximately $5.9 billion of the total $6.5 billion. We have four properties under development. Our education portfolio comprises 74 properties with eight operators, and at the end of the quarter was 100% occupied. Now I'll update you on the operating status of our tenants, our deferral agreements and rent payment timelines. 71% of our theaters were open as of April 30. Under Regal's announced reopening schedule, all of our Regal theaters will be opened by May 21st. And at that point, we anticipate 98% of our theaters will be open. Some theaters remain closed because of governmental orders. All four of our Canadian theaters are closed at least through May 20 due to governmental mandate, and our dine-in-theater in San Francisco is closed until July because of local indoor dining restrictions. We have five vacant theaters, not operated by any of our major exhibitors, which we are re-leasing and seven closed theaters which we are selling, six of which are under contract. Finally, we are continuing to operate two theaters through a third-party manager, a former AMC in Columbus, Ohio, and the former Goodrich Savoy in Champagne, Illinois. April's box office performance exceeded industry expectations led by King Kong Vs Godzilla, Mortal Kombat, and Demon Slayer. The outperformance of all three films drove box office to $189 million for April, a 66% increase from March's $113 million. The strong results from these three films show the consumer is eagerly embracing the opportunity to get back to the movies. We are particularly encouraged by these results given that most theaters are still operating under capacity restrictions, Regal is still ramping up US openings and won't be fully open until late May, and that less than 20% of Canadian theaters are open. With increasing vaccinations, the approach of summer, and easing restrictions, the primary challenge for exhibitors now is a lack of film supply. The remaining film slate of high quality tentpole films lines up nicely to drive increasing consumer demand through 2021. Beginning at Memorial Day with A Quiet Place II and following with Venom: Let There Be Carnage, June, Carola, Fast and Furious 9, Black Widow, Suicide Squad, Shang Chi and The Legend of the Eternals, Ghostbusters: Afterlife, Top Gun, Maverick, Spider Man No Way Home, The King's Man and Matrix 4. Studios, content providers, and the consumer all value the big screen experience. April's performance bears that out. I want to briefly address lessons learned over the past year. The studios' decision to delay the release of the vast majority of their tentpole titles until theaters reopen in 2021 and 2022 is the best evidence of their commitment to the exhibition economic model and the importance of the theatrical window as a critical revenue driver for the studios and content providers. COVID-19 forced studios and exhibitors to experiment; studios understandably evaluated alternative content delivery options, including Premium Video on Demand, PVOD, Subscription Video on Demand, SVOD, hybrid models of theatrical release mixed with PVOD, or SVOD, and selling movies to streaming services. We believe the best indicator of the results of this experimentation is that the overwhelming majority of tentpole films scheduled for theatrical release, pre COVID-19 will be released theatrically in 2021 or 2022. It made economic sense for the studios to wait until theaters were permitted to reopen throughout the US, and they did. Studios and content providers do not consider PVOD, SVOD, and other forms of at-home viewing as replacements for theatrical exhibition. Consumers subscribe to the streaming services for all-you-can-eat buffet content and generally aren't interested in paying an up-charge for an individual release. The relative lack of PVOD content during COVID-19, at a time when much of the country was looking for any entertainment option in their home, demonstrates that studios don't see a big market for PVOD. Strong box office numbers for Warner Bros films released day and date in theaters and on HBO Max without up-charge also bear this out. While streaming services need content, it's hard to make the math work for PVOD or direct to SVOD without a theatrical release for major motion picture. Additionally, major exhibitors continue their negotiations with the studios on the length of the exclusive theatrical window. It appears to be coalescing around 45 days down from the prior 90 days. From our perspective, there are positives. Historically, over 90% of ticket sales occurred in the first 45 days. So economically, the shift in the window is not that material. With the reduced window and the need for studios, content providers, and exhibitors to continue experimentation, we could see content from Netflix, Amazon, and Apple shown theatrically before being moved to streaming services. Just this week, Cinemark and Marcus both announced agreements with Netflix to show Army of the Dead in theaters for one week, starting on May 14 before it's available on Netflix on May 21. This follows Cinemark and Netflix's partnership to show Ma Rainey's Black Bottom, The Midnight Sky, and The Christmas Chronicles too theatrically. The consumer's desire to return to see movies on the big screen is reflected in the surprisingly strong performance of King Kong Vs Godzilla, Mortal Kombat, and Demon Slayer. When theaters were allowed to reopen, box office records were set in China, Japan, and Australia. Our tenants are coming up with new and better ways to enhance the customer experience, from touchless ticketing and concession ordering to private screenings. Going to the movies still remains a remarkable value for an out-of-home consumer experience. Turning now to our other major customer groups. Approximately 96% of our non-theater operators are open. Our seasonal businesses are closed in the normal course. With increases in vaccinations and the fast approach of summer, we see continued strong performance in our drive-to, value-oriented destinations. We are pleased with the results from the ski season. People demonstrated they still want to ski particularly and drive to destinations. Across the portfolio, attendance was in line with three-year averages and revenues were down only slightly reflecting restrictions on food and beverage in many locations. We continue to see strong performance across eat and play. All of our Topgolf locations, including our recently acquired San Jose location, are open. All four of our Andretti Karting locations are open. We're delighted that our fifth in Buford, Georgia will open in May. All of our gyms are open and attendance continues to increase. We are seeing very strong pent-up demand across our attractions and cultural holdings. We expect this trend to continue throughout the summer as vaccinations increase and restrictions are lifted. The City Museum, Santa Monica Pier, and our Titanic museums are open. We expect all of our amusement parks and water parks to open in 2021. Seven are currently open, 5 have confirmed May opening dates and we're awaiting dates for the final 2, subject to state restrictions in California and Washington. We are likewise seeing strong demand in our experiential lodging portfolio and expect the trend will continue throughout the summer as well. Except for the Cartwright Resort and indoor water park in the Catskills, and the Bellwether Beach resort on St. Beach, all of our experiential lodging assets are open. Park right remains subject to New York State phased reopening plans for water parks. We are working toward an opening in the summer of 2021. We are completing a substantial renovation to the Bellwether and it will fully reopen by mid June. Resorts World Catskills is open. All of our early childhood education centers are open, and we are seeing a steady increase in demand monthly as COVID restrictions ease and parents return to work. All of our private schools are open, utilizing a combination of in-person online and hybrid instruction models. Our primary capital recycling activity has been in the theater category. In Q1, we sold one theater property and a vacant non-theater building for net proceeds of $13.7 million. We're very pleased with our progress in disposing of vacant theaters. Since Q3 2020, we have sold three theaters. And as I mentioned earlier, we've executed contracts for another six. In Q4, we terminated all seven of our AMC transition leases and took back the properties. We're operating one. In Q4, we sold one for an industrial use. We have executed contracts for the remaining five. We also have a former CMX theater, which was rejected in bankruptcy under contract. These six projected sales are for industrial, multifamily, office, and theater reuse. We anticipate closing on all six sales throughout 2021 and into 2022. Finally, I want to update you on the status of our cash collections and deferral agreements. Throughout the COVID-19 pandemic, our number one priority was to work proactively and diligently with our customers to structure appropriate deferral and repayment agreements. We tailored each deal to give them the right amount of breathing room to reopen efficiently and help ensure their long-term health, all while protecting and improving our position in rights as landlords. We wanted to and have helped them through a period where they had significantly reduced or no cash flow, allowing them to ramp back to a stabilized cash flow. Our agreements are generally structured with rent and mortgage payments, including deferred amounts, financing, and ramping up through 2021 and in some cases after 2021. Cash collections continue to improve in conjunction with reopenings. Tenants and borrowers paid 72% of contractual cash revenue for the first quarter, and 77% in April. We're seeing results from these efforts. I want to share two examples of this win-win approach. First, as noted earlier in my remarks, we are delighted to have acquired the brand new Topgolf San Jose, which opened on April 16, using a portion of their deferred rent as currency. San Jose is Topgolf's second location in California. It's an outstanding location in a compelling DMA. The transaction reflects our long and valued partnership with Topgolf and our creative approach throughout the pandemic to work with our tenants to address difficult issues. Second, as noted, the ski season was strong early in the pandemic before anyone knew what the ski season would look like. We worked with Camelback to ensure they had sufficient cash to weather what we all feared could be a rough winter. Because the ski season was strong in April, Camelback repaid its entire deferred balance six months early. Again, this demonstrates our commitment to taking the long view of our customer's ability to perform informed by the underlying strength of our underwriting and real estate. Finally, customers representing substantially all of our contractual cash revenue, which includes each of our Top 20 customers, are either paying their contract rent or interest or have a deferral agreement in place. In those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions. Mark will provide additional color on the revenue recognition and cash collection implications for the second quarter of 2021. I now turn it over to him 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 balance sheet and strong liquidity position, and conclude with some estimated forward information. I'm pleased to say I will be briefer than in the past few quarters. FFO adjusted for the quarter was $0.48 per share compared to $0.97 in the prior year, and AFFO for the quarter was $0.52 per share compared to $1.14 last year. Total revenue from continuing operations for the quarter was $111.8 million, down from $151 million in the prior year. This decline was mainly due to the accounting for restructured agreements with various customers and revenue from certain tenants being recognized on a cash basis due to the impact of COVID-19. We also experienced decreased revenue from property dispositions and an increase in vacancies. Moreover, we recorded lower other income and lower other expenses of $6.9 million and $7 million respectively, largely because the Cartwright Resort and indoor water park remained closed due to COVID-19 restrictions. Percentage rents for the quarter totaled $2 million compared to $2.8 million in the prior year, reflecting lower percentage rents from tenants impacted by COVID-19, as well as the disposition of certain private schools in December 2020. This decrease was partially offset by additional percentage rent from an early education tenant due to a restructured agreement. I want to clarify that we define percentage rents here as amounts due above base rent, not payments in lieu of base rent based on a percentage of revenue. Property operating expense for the quarter was $15.3 million, which was about $2.2 million higher than the previous year, primarily due to increased vacancy. Interest expense increased by $4.4 million year-over-year to $39.2 million, partly due to a higher weighted average outstanding amount on our $1 billion revolving credit facility. At the end of the first quarter of 2020, we borrowed $750 million as a precautionary measure for added liquidity amidst the uncertainty of COVID-19. By December 31, 2020, stronger collections and significant liquidity allowed us to reduce the outstanding balance to $590 million, and we further reduced it to $90 million in January 2021. After the quarter ended, we used some of our cash on hand to settle the remaining balance. The increase in interest expense is also due to higher rates on our bank credit facilities and private placement notes during the covenant relief period, which were approximately 100 basis points and 125 basis points higher, respectively. Additionally, we earned less interest income from short-term investments in the first quarter because we used cash to pay down the revolving credit line, and deposit rates were lower than the previous year. Lastly, during the quarter, we reduced our allowance for credit loss on our mortgage notes and notes receivable, resulting in a credit loss benefit of $2.8 million compared to a loss of $1.2 million last year. This benefit arose from changes in the macro environment signaling recovery from the pandemic, which reduced the calculated allowance using our third-party model. Note that this benefit is excluded from FFO adjusted. Now, let's move to our balance sheet and capital markets activities. Our debt to gross assets was 39% on a book basis at March 31. At the end of the quarter, we had total outstanding debt of $3.2 billion, with $3.1 billion either fixed rate or fixed through interest rate swaps at an approximate blended coupon of 4.7%. Our weighted average debt maturity is about five years. We have no scheduled debt maturities until 2022, when only our revolving credit facility matures, and it currently has a zero balance. As discussed earlier, considering the impact of COVID-19 on our near-term financial outcomes in 2020, we amended our bank credit facilities and private placement notes to waive specific covenants through the end of 2021, subject to certain conditions. This provides us with additional time and flexibility to work with our customers, and we can opt out of the covenant relief period early subject to conditions. We had $538.1 million in cash at the end of the quarter. As mentioned, we paid down our revolver to zero in April. Cash collections from customers are improving, with approximately 72% of contractual cash revenue or $98.1 million for the first quarter and 77% for April. During the quarter, we also collected $29.5 million of deferred rent and interest from accrual basis tenants and borrowers, including a payment from Topgolf that was used for purchasing its San Jose location. The deferred rent and interest receivable balance on our books as of March 31 was $59 million. After the quarter ended, in April, we received an additional $10.5 million in deferral payments, bringing the year-to-date total to $40 million. We expect to continue collecting deferred rent and interest from accrual basis tenants and borrowers primarily over the next 36 months. We are encouraged by the positive signs we are witnessing in our customers' businesses and anticipate that the positive trajectory of cash collections will continue throughout 2021 and into 2022. As previously announced, due to uncertainties arising from the disruptions caused by COVID-19, we are not providing any forward earnings guidance. However, we want to update you on the expected ranges of contractual cash revenue we anticipate recognizing in our financial statements for the second quarter of 2021 and the expected collections for that same period. The expected range for Q2 2021 contractual cash revenue recognition is $109 million to $116 million, or 80% to 85%. Additionally, we expect to collect between $102 million to $109 million of that same contractual cash revenue in Q2 of 2021, which corresponds to 75% to 80%. The differences from the total amount of contractual cash revenue relate to granted deferrals and the associated accounting, as well as abatements. Now, I will turn it back over to Greg for his closing remarks.

Greg Silvers, President and CEO

Thank you, Mark. As evident from our discussion today, we're very pleased with our results in the trajectory of the recovery. The success of the vaccine deployment should further strengthen the momentum of experiential assets. As we've discussed previously, and today, we do not have a consumer demand issue, but rather a restricted environment. As these restrictions continue to be relaxed, our properties and tenants will benefit from this pent-up demand. With that, why don't I open it up for questions, Alicia?

Operator, Operator

And your first question comes from Katy McConnell of Citi.

Unidentified Analyst, Analyst

Hi everyone, this is Parker Ukrainian filling in for Katy. Thank you for taking my question. My first inquiry is about the increase in content. Do you believe there is a possibility that as more theaters reopen, some of this new content could perform better? I think the 66% increase in box office revenues is encouraging, but do you think there's a chance it could continue to improve over the next few months?

Greg Silvers, President and CEO

I think there's a chance, but I'll ask Greg to join in. Most of the dates seem fairly settled now. We saw A Quiet Place II move to the Memorial Day weekend, but with things settling down and people seeing their trajectory, the weekends are kind of allocated. If it were to occur, I would say it would likely be in the fourth quarter. Greg, do you have any thoughts?

Greg Zimmerman, Executive Vice President, CIO

No, I'd agree, Greg. And I think actually, we view as a positive the stabilization of the schedule, because it was moving around a lot as theaters were reopening. And now we have some clarity on it. There's a fairly nice cadence through the end of the year.

Unidentified Analyst, Analyst

Got it. And then if I can just ask one more question about how comfortable you feel about investing additional capital in some of these new development opportunities or other acquisitions, not necessarily like the Topgolf acquisition, but more about putting capital to use before coming out of the covenant relief period or reinstating the dividend?

Greg Silvers, President and CEO

Well, I think we've said pretty consistently that we're going to be limited in what we can do in the covenant relief period. But as you can see from the tone and tenor, we feel our trajectory is really good. We've said all along that the second half of the year is probably where we're really going to be gearing up for capital deployment. I think nothing's changed that trajectory for us right now. Now it's about building the pipeline for execution in the second half of the year.

Operator, Operator

Your next question comes from the line of Anthony Paolone of J.P. Morgan.

Anthony Paolone, Analyst

Thanks and good morning. Just as you think about the theatres reopening in the portfolio, can you put some brackets around where, I guess attendance needs to be perhaps on like a percentage basis or something that we get your theaters to a level where they can cover contractual rents?

Greg Silvers, President and CEO

Well, I think Tony, we've done some work on kind of things of that nature, it's probably we could sustain and Mark, I know, we worked on this somewhere probably 35% to 45% reduction in revenue to get to 10 so it could be a substantial reduction. I think again, 2021 is going to be a ramping year. What we're all looking for now is kind of what this 2022 as we're in the normalcy, but I think if anything right now, our exhibition partners are thinking, the second half of the year, if this continues, it could exceed expectations because of this pent-up demand. Trying to see kind of where coverage is for a partial year is going to be difficult, but we know that there's a lot of flexibility in the overall expense structure. A lot of our operators have made considerable improvements, as have all of our experiential tenants with margin improvement and improved technology. So that 35% to 40% reduction was based on the old model. It may have, in fact, improved from there.

Anthony Paolone, Analyst

Understand, and I'm guessing even pre-COVID theaters didn't run at 100% capacity. So given the ability to take revenue, I guess down, 35%- 40%, or whatever it ends up being, like, are the capacity constraints, are they a big limiting factor? Or can the theaters get back to a level that makes some sense, even with some of these restraints in place?

Greg Silvers, President and CEO

They can, I mean, and I'll ask Greg, the challenge that we have had in the theatre industry is the capacity is looked at on a seven-day week, and we drink from a fire hose on Friday, Saturday, and Sunday. We are operating even now to with some of the titles that Greg mentioned, we're selling out all shows on the weekend. And to date, we still don't see people transferring to Monday and Tuesday. So if you looked at a capacity, you'd say like now on a full seven days, you have the capacity if everybody balanced themselves out. But still, people are focused on that weekend activity where the capacity constraints really tend to come into play. But Greg, maybe you have some additional thoughts.

Greg Zimmerman, Executive Vice President, CIO

Yes, I agree, Greg. The other thing I would say is that most of our theaters have enough houses that we can show the film on multiple screens at the same time to take up some of the capacity.

Operator, Operator

Your next question comes from the line of Anthony Paolone of J.P. Morgan.

Anthony Paolone, Analyst

Okay, I see. And then, as we think about just the remainder of deferred rent, you may have mentioned this, but is there a dollar amount right now? Or should we look at your account receivables, which I think were 90 some odd million dollars, and think of what that should be on a normalized basis? And that difference being what's left to collect?

Mark Peterson, Executive Vice President and CFO

Yes, Tony, it's Mark. First of all, you got to take straight line out of that, which is about $36 million. Our AR was about 60-ish, the deferred number was about $59 million. So typically, we don't have that much AR. We have some maybe a couple million. So it's high, because we have deferred accounts receivable on our books that as I mentioned, will get paid over the next roughly, 36 months, most of it. So, we expect that number to come down quarter over quarter because we're still deferring some and then we're collecting some, but we're collecting more than we're deferring. Ultimately, the referral number should go to essentially zero roughly in the next 36 months.

Anthony Paolone, Analyst

Got it understand then, last question just on the dividend. Any thoughts on how you are thinking about reinstating it in terms of a gradual ramp back up or a different type of payout ratio you're envisioning in the future?

Greg Silvers, President and CEO

Yes, Tony, I mean, I think, again, it's always a board decision, but I think we would likely look at the balance of '21 as some sort of minimum taxable payout and then get on a trajectory as we move into '22. It’s a kind of a guidepost. But again, that's a board decision. As we come out of covenant relief and the trajectory that we're on, clearly, the dividend is an important feature to our board, and we understand why people like REITs and the fact that the dividend is an important component. Our board is considering it as a priority to get back to paying a dividend.

Operator, Operator

Your next question comes from the line of Rob Stevenson of Janney.

Rob Stevenson, Analyst

Good morning, guys. Mark, just want to ask Tony's question a little bit differently. What's the roadmap from here to exit the covenant relief? Not so much the dividend but what do you need to see and what do you need to do from here, given where the balance sheet is and the repayment of the line of credit, et cetera, and the expected second quarter revenue that you talked about? What needs to happen from here for you guys to exit covenant relief?

Mark Peterson, Executive Vice President and CFO

Yes. We need to demonstrate compliance with our covenants at the end of a quarter without the benefit of the waiver. The most restrictive covenant that is the hurdle is the debt-to-total asset covenant that's in our bank and private placement notes. The reason that's the most restrictive is the way asset value is measured, which is essentially looking at NOI for the quarter time is four. As that NOI ramps up, which we expect to have been happening, expect to continue in Q2, that number goes down, and we need to be under 60% the way it's measured in the agreement, debt to total asset value. That's really the main, we're really good on the coverage ratios and so forth. It's really, that one being the tightest and as Greg said, we expect to hopefully come out of the covenant relief period early given the ramp we're seeing in our operations sometime during the second half of the year.

Rob Stevenson, Analyst

Okay, so it's not a June 30, it's more likely to be September end of September type of thing before realistically you can get there?

Mark Peterson, Executive Vice President and CFO

Could be the end of second quarter, could be June 30, which means we would finish the quarter, file our compliance in sometime in July in theory, we could be out of the covenant relief period. That's the earliest that could happen. If it doesn't happen in Q2, then yes, we'd be looking to possibly at the end of Q3.

Greg Silvers, President and CEO

Rob, it's Greg. I think what we tried to say and clearly, we don't know all this as it plays out. But I think if we hit the upper end of our collection guidance that second quarter could be a realistic option for us.

Rob Stevenson, Analyst

That's very helpful, thank you. Can you share how utilization at Topgolf and Andretti compares to pre-pandemic levels? Also, are there any food and beverage restrictions that might be affecting their revenues?

Greg Silvers, President and CEO

Yes, I'll let Greg add more color on this. But what we're seeing now is for those types of businesses, they're approaching 2019 kind of numbers, so their businesses are bouncing back. Food and beverage restrictions are very local and state-driven. But for a lot of these, they're operating with very limited restrictions, if you're in Texas and Florida and things of that nature.

Greg Zimmerman, Executive Vice President, CIO

Yes, Rob. There are a couple of points to note. Topgolf operates outdoors, so despite some restrictions, they have managed them effectively. Additionally, as Greg mentioned, many of our tenants have spent the past year streamlining their expenses, which has been beneficial. I agree with Greg that businesses are approaching 2019 levels, and demand is clearly present.

Rob Stevenson, Analyst

Okay. And then last one for me, as you're having discussions with the operators, I mean how significant is it expected that you'll see restrictions on the water park amusement park, in terms of either capacity or anything else in terms of the reopenings? Or given those your comments about the municipalities, et cetera? Do you expect those to be fully open this summer without really any material restrictions?

Greg Silvers, President and CEO

I would say, and I'll let Greg add to this, but if I were to predict, our biggest challenge will be in Washington State and upstate New York; those areas have been much more restrictive. In fact, California is easing restrictions at a much faster rate. Those two regions seem to be the most challenging. Additionally, even though we don't have a water park there, Canada is currently facing significant issues, especially with the mandatory lockdown noted by Greg. Many assets are being negatively affected there. But Greg, have you found out anything?

Greg Zimmerman, Executive Vice President, CIO

Yes. Echoing what Greg said about food and beverage, there are many states that I don't need to list for you that have lifted restrictions completely. Secondly, I would say that our operators have had a year to get ready for this. To the extent there are capacity restrictions, they're working around them and working through it. Again, the demand is there. We're comfortable that there'll be a good summer.

Operator, Operator

Your next question comes from Adan Ken of EPR.

Unidentified Analyst, Analyst

Is that me? Can you hear me? Sorry. This is Kevin. So I figured it was me, but I wasn't sure. Can you just talk about the revenue run rate here? I know there were some negotiations and rent costs and rents on a percentage basis. And like all these moving pieces as we get back to normal, and I guess you can assume, in a fully post-COVID world, all things are open, what does the revenue run rate look like going forward? I'm just trying to capture what the feeling is?

Mark Peterson, Executive Vice President and CFO

Well, the contractual cash revenue today is at 100% so $136 million cash, contractual cash revenue. We expect to get to that mostly through towards the end of this year, but there is some additional ramping into 2022. To get back to that contractual cash flow, of course, anything we acquire adds to that number, or disposes, of course, takes away from that number. We expect that ramp to happen over the rest of this year, primarily, and then there is some additional ramp, particularly in the attraction area that happens in 2022. Do we get back to that full run right?

Unidentified Analyst, Analyst

And does that $136 million include the mortgage interest?

Mark Peterson, Executive Vice President and CFO

Yes, that does include the mortgage interest; it does not include percentage rents, true percentage rents, and rents over base amounts. But yes, it does include mortgage interest; it also includes CAM.

Unidentified Analyst, Analyst

Got it. When you mention that you collected 77% of contractual rent in April, some of the deals are based on a percentage. So, is it 77%? But does that include deals that are based on a percentage? Even though you're collecting it, is it really not full rent? Is that the correct way to think about it?

Mark Peterson, Executive Vice President and CFO

Yes, it's a good way to say; it does have some variable rent in there. We have certain tenants on a base rent, and if their sales are better, they pay additional rent. That really happened with somewhat from our performance in Q1. But I will say most of that rent that we're collecting is really fixed rent. It's on the margin, we're getting additional amounts over kind of a base. There's not a whole lot, especially moving in the second quarter. That's 100% variable, and there's generally a base and then there's, in some cases, an outperformance clause that if sales are greater than x, you'll pay additional rent over that percentage. All those payments are towards that base and are included in that 77%.

Unidentified Analyst, Analyst

Got it. And just last question for me as the debt. I guess due to the covenant waivers that you received; I know that came with a higher interest cost to it. So as that goes away, like what kind of interest expense savings should we expect?

Mark Peterson, Executive Vice President and CFO

Well, on the line of credit, which doesn't have anything outstanding right now, it's about 100 basis points. And then we have a term loan of $400 million, that's about 100 basis points. The two private placement issues that total $345 million, it's 125 basis points. It kind of goes back to the, what it was before based on our ratings. Kind of 100 basis points on the $400 million and then 125 basis on about $340 million. We expect that benefit going forward.

Operator, Operator

Your next question comes from the line of Michael Carroll of RBC Capital Markets.

Michael Carroll, Analyst

Can we discuss your rent collection trends? It seems like you're moving in a positive direction. You collected 77% in April, but anticipate collecting 75% to 80% in the second quarter overall. Why are we expecting this trend to continue? If you're already at 77% in April, wouldn't that be the lower end of your range?

Greg Silvers, President and CEO

But again, go ahead Mark, no, go ahead.

Mark Peterson, Executive Vice President and CFO

I said it could potentially be better. A lot of these things kind of ramp up quarterly. So we did see a nice increase from Q1 to April at 77%. Our guidance of 75% to 80% obviously implies an increase from what it was in Q1. There's a chance that number is at the high end, of course at 80%. A lot of these agreements kind of ramp quarterly over time.

Greg Silvers, President and CEO

Yes, I'd say Michael, kind of go into Mark's earlier comment. We kind of have been stepping people up, and they're paying a percent of their base rent and then potentially some kickers. So we have a view as we in April, we knew we were going up. The performance kickers, we really don't know. Those are the kind of the unknown. But all along, what we've said, we've tried to move away from pure percentage rent to base rent and gradually move them up as we ramp up. So as we moved into April, we knew it was going up, because we were stepping people up as a percent of their contractual fixed rent that they were paying.

Mark Peterson, Executive Vice President and CFO

And just to add, most of that increase is going to be in the theater area. We have a strong collection, around 90% of the non-theater side, and we see theaters ramping from what was about 50%, roughly in Q1 to something closer to 70% in the second quarter. So a nice, really theaters are driving that increase in Q2.

Michael Carroll, Analyst

Could you discuss the expectations for the film slate? You've mentioned that some movies are exceeding expectations, but what about Bond and Black Widow? What kind of box office numbers should we anticipate, and what would constitute success for these films?

Greg Silvers, President and CEO

I think and I'll let Greg weigh in as well. But I think as we move into the fall, we're looking for numbers that would have been similar to what we saw pre-pandemic. If you look at kind of Mortal Kombat and Demon Slayer, which I'm sure is at the top of everybody's wish list to go out and see over the last two weeks, their numbers approached what their pre-pandemic expectation level was. So again, it would be, I think we will be looking at like Bond as a post-$100 million film. We think that's the way the studios are looking at it. But Greg, maybe you have more color.

Greg Zimmerman, Executive Vice President, CIO

Yes, Mike. The other thing I would add is, it's a moving target, obviously, based on performance on a weekly basis. But I think most analysts think that the box for the entire year will end up between $4 billion and $5 billion. We're at about $450 million right now. So the second half of the year should be very strong.

Michael Carroll, Analyst

Okay, great. Can you talk a little bit about the capacity restraints on those films? I think that you were saying earlier that they were showing them in more screens. So I guess was the capacity constraint a big issue for those specific film titles? I guess I understand it is the constraint for the overall box office. But what about those films specifically?

Greg Silvers, President and CEO

I am unsure about the exact capacity constraints for those films since many are scheduled for the latter part of the year. As Greg mentioned earlier, one advantage we have right now is having fewer films, which allows us to show them in more theaters. However, as we approach fall, we will have a more diverse film release schedule. Consequently, the opportunity for operators to showcase a film in seven or eight theaters will likely decrease, returning us to a more traditional approach of playing in two to four theaters.

Greg Zimmerman, Executive Vice President, CIO

Michael, one sec, I just want to give you a couple of data. Right now, there are nine states with zero capacity restrictions, basically, I mean, some social distancing, but no capacity restrictions, and only seven states have less than 50% capacity. So we're moving toward full capacity as the year progresses.

Michael Carroll, Analyst

Okay. And then can you talk about the type of investments that you're looking at right now? I know that you're kind of highlighting that you're ramping up your pipeline, but what type of deals and segments within the portfolio are most interesting?

Greg Silvers, President and CEO

I think, as always, what we can say generally is we're trying to win; we're not going to raise our theater exposure and looking to raise in our other areas. Again, we were pretty upfront as when we came into the pandemic that we were looking at gaming. I'm sure we're going to revisit that, but I think Greg and his team are looking at attractions, eat and play, live entertainment, all of those other areas. What I can tell you is it won't be in theaters, but it will broadly be in our other areas of experiential.

Operator, Operator

Your next question comes from the line of John Massocca of Ladenburg Thalmann.

John Massocca, Analyst

Good morning. So maybe following up on that last question, as you look to build out the pipeline of potential transactions, maybe in 2H. What does the cap rate environment look like for those types of entertainment assets compared to pre-pandemic?

Greg Silvers, President and CEO

Yes, I think Greg can elaborate on that. Currently, we are still in the mid-sevens, below eight. This will largely depend on credit, the quality of the operator, and the property. Generally, real estate in California and the Eastern Seaboard tends to be a bit more valuable. Greg, what are your thoughts on this?

Greg Zimmerman, Executive Vice President, CIO

I think that's right. And again, given the strong performance of some of these assets, I don't think there's been a lot of change in the cap rate.

John Massocca, Analyst

Okay, but perhaps there will be compression for some of the more pandemic-resistant entertainment assets?

Greg Silvers, President and CEO

We may see some of that. We're just beginning to build up and trying to see what's out there. I think you have clearly seen the reverse of that in the theater space, but that's not an area we're looking to invest in. There has been some discussion of gaming assets, but overall, that range still looks pretty solid.

John Massocca, Analyst

Okay, and then switching gears a little bit, it seems like earlier comments in the AMC kind of revenue percentage numbers indicated that your tenants are still paying in conformance with the agreements that are in place as of the case in 1Q. Am I thinking about that correctly? And I guess also, were there any notable changes to deferral agreements or rent levels or anything like that in the quarter?

Greg Silvers, President and CEO

No, I think we could say yes, I think Greg said that people are kind of paying in conformance with their agreements. We feel, as he mentioned earlier, we've set those up to be mutually beneficial. I want to take the opportunity to commend our team for being creative in this. What they did with Topgolf and turning deferred rent into a quality asset is kind of first-rate and allows us to be very thoughtful about how we approach this. I think we structured agreements and people are honoring those agreements. We feel good about the trajectory of where we're going from here.

John Massocca, Analyst

Okay, and then one last quick one, I know it was relatively small, but what drove the slight decline in occupancy this quarter? Was it just the theater bankruptcy or something else?

Greg Zimmerman, Executive Vice President, CIO

Yes, John, we had; unfortunately, we had a small chain in New England where the operator passed away unexpectedly. So they're shuttering the business, and we are going to re-lease the theaters. But that was a large part of it.

Operator, Operator

Your final question comes from the line of Joshua Dennerlein of Bank of America.

Joshua Dennerlein, Analyst

Hi, everyone. I was just curious about the pivot to growth going forward. How we should think about your appetite for gaming assets going forward? I know, before the pandemic, you guys had announced a pending acquisition, and curious if that's still potentially on the table, and then just going forward how you're thinking about that sector?

Greg Silvers, President and CEO

Yes, I mean, again, Josh, I think we like this sector. We'll have to see if that transaction is still available. I mean, I think we know it hasn't transacted yet. It's something that could be available. We like the sector in the sense of our underwriting kind of proved how it kind of performed, and we think there's value there and it's consistent with our strategy of becoming the most diversified experiential REIT for investors to have an opposite investing in. We feel it's part of our strategy as we move forward that people want exposure to experiential; they just don't want one category. We will be able to give them a fully diversified option as we move forward. I would expect us to aggressively look at gaming; we spent a lot of time on it beforehand, and I don't see anything that would change that. But Greg, maybe you have some thoughts.

Greg Zimmerman, Executive Vice President, CIO

No, I agree. And the other thing I would say is we've kind of said we've been focused on regional gaming, because we like the resiliency, and we like the concept of drive-to value entertainment, which is the bulk of our portfolio.

Joshua Dennerlein, Analyst

Yes, maybe one follow-up for me. Greg, you mentioned kind of diversifying the portfolio. Does that entail kind of just growing that base away from theatres or do you think we will see heavier dispositions on that front. So you get more diversification?

Greg Silvers, President and CEO

Yes, Josh, there's no doubt that we've spoke publicly about that. We would like to lower our concentration of theatres. Again, we would like to try to get closer to reflect, our portfolio reflect the opportunity set of experiential and candidly we have too large of a theater exposure. Now, whether that we modify that through growing other things or selling things, I'm sure we'll explore all of those options.

Operator, Operator

There are no further questions at this time. Do we have any closing remarks?

Greg Silvers, President and CEO

Sure. I just wanted to thank everyone. I appreciate your time and attention. As we can see, we look forward to talking to you next quarter, and hopefully continuing this momentum of what we've established here. So everyone, have a great day and we will talk soon. Thanks.

Operator, Operator

This concludes today's conference call. You may now disconnect.