Earnings Call Transcript - EPR Q2 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the Q2 2023 EPR Properties Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Moriarty, Vice President of Corporate Communications. Please go ahead.

Brian Moriarty, Vice President of Corporate Communications

Okay, great. Thanks for joining us today for our second quarter 2023 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. We'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, and 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 those 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 is 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 Greg Silvers.

Greg Silvers, Chairman and CEO

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's second quarter 2023 earnings call and webcast. During the quarter, our top line revenue grew approximately 8% and our FFO as adjusted per share grew approximately 9% versus the same quarter prior year. These results were driven by both a continued strong recovery in our experiential properties and consistent deferral collections. As we announced on June 28, finalizing the Regal restructuring agreement was a significant step in strengthening our theater portfolio and enhancing our overall company profile. The agreement provides us with a significantly stronger tenant, a long-term master lease, and a percentage rent component allowing us to participate in a recovering box office. This resolution also gives us more visibility into our earnings outlook and we're pleased to provide earnings guidance for 2023. Also, as recently announced, Southern Theatres was acquired by Santikos Theaters. Southern was our fourth largest theater tenant and as part of the acquisition, we repaid the remaining deferred rent. This strengthens action demonstrates renewed confidence in theatrical exhibition and strengthens our theater tenant base. Over the last few weeks, we've witnessed the power of theater exhibition and the validation of studios Apple and Amazon to commit to theatrical exhibition as the primary distribution platform for movie content. The combination of Barbie and Oppenheimer has become a societal event, which has transcended consumer demographics. Separately, a low-budget Sound of Freedom blew away box office expectations generating over $150 million year-to-date. This type of outperformance is hard to predict for any single film, yet over time it has proven to be a consistent occurrence for select films. Through July 31st, box office is up 20% versus 2022 and is currently tracking towards $9 billion for 2023. The writer and actor strikes present a fluid dynamic and may impact box office, depending on the length of time to resolution. In a bit of a positive sign, it has been reported that the writers guild and the studios have agreed to meet this Friday, which they have not done for three months. Regardless of this near-term dynamic, any impact is anticipated to be short-term as the participants understand that a robust theatrical business is a necessary part of the landscape, providing the primary path to economic viability for movies. Shifting to capital spending, we've completed approximately $100 million of investments to date and are selectively growing our experiential portfolio, while being prudent in our capital allocation. Additionally, we've committed to approximately $224 million of additional experiential development and redevelopment projects over the next two years for which we already have the necessary capital. Now I’ll turn it over to Greg Zimmerman for more details on the quarter.

Greg Zimmerman, Executive Vice President and CIO

Thanks, Greg. At the end of the quarter, our total investments were approximately $6.7 billion with 363 properties in service and 97% leased. During the quarter, our investment spending was $32.2 million, bringing our total investment spending for the first half of the year to $98.7 million. 100% of the spending was in our experiential portfolio and included continued funding for experiential built-to-suit development projects and redevelopment projects commenced in 2022. Our experiential portfolio comprises 290 properties with 51 operators and accounts for 92% of our total investments or approximately $6.2 billion, and at the end of the quarter was 98% occupied. Our education portfolio comprises 73 properties with eight operators and at the end of the quarter was 93% occupied. All of the vacancy in education is from the properties held for sale at the end of the quarter. Turning to coverage. The most recent data provided is based on a March trailing 12-month period. Overall portfolio coverage for the trailing 12 months continues to be strong at 2 times. Trailing 12-month coverage to theaters is 1.3 times with the box office for the 12 months ending March 31st at $7.7 billion. For reference, trailing 12-month box office through June 30th is $8.1 billion. Trailing 12-month coverage for the non-theater portion of our portfolio is 2.7 times. Now I'll update you on the operating status of our tenants. Regal completed its emergence from bankruptcy on July 31st, which is the effective date of the master lease and all ancillary documents. We received July rent and deferred rent from Regal. Mark will discuss amounts relating to our claims in conjunction with the completion of the bankruptcy case. We're pleased to report that the five surrendered Regal theaters operating through management agreements are open. Based on our experience with operating theaters and our strong relationships with Cinemark and Phoenix, we were able to open the theaters less than one week after Regal turned the keys back to us. Cinemark is operating theaters in Houston, Columbia, Maryland, Orange County, and Suburban Chicago, and Phoenix is operating a theater in Suburban Louisville. On July 17th, Santikos Theaters acquired VSS-Southern Theatres through an asset purchase agreement. With 10 theaters, Southern was our fourth largest theater holding. Santikos is owned by the San Antonio area foundation, one of the nation's premier community foundations. The combined Santikos entity operates 27 highly amenitized theaters in eight Southeastern states, making it the eighth largest theater circuit in North America. In anticipation of the Santikos transaction, we entered into a lease termination agreement on a ground lease theater property in New Iberia, Louisiana, in which we no longer have an interest. There was no change to our overall economics as a result of the termination. In conjunction with the transaction, Southern paid its entire remaining deferred rent of $11.6 million, which will be recognized as rental revenue in the third quarter of 2023. The second quarter was a continuation of box office recovery. Box office for the first two quarters was $4.4 billion, a 20% increase over the first-half of 2022. Q2 total box office was $2.7 billion, a 15.5% increase over Q2 2022, led by the Super Mario Brothers movie, Spider Man Across the Spider Verse, Guardians of the Galaxy Volume 3, and the Little Mermaid. Seven films grossed over $60 million and three grossed over $100 million. Q3 is off to a robust start led by the record-shattering performance of Barbie and Oppenheimer, both of which continued to defy all expectations, along with the unexpected hit Sound of Freedom, which has generated approximately $150 million to date. Fueled by Barbenheimer, July box office gross exceeded July 2019 box office gross. Through July 31st, 19 titles have grossed over $100 million in 2023 and year-to-date box office gross stands at $5.7 billion, a 20% increase over the same period in 2022. Our high-quality theater portfolio continues to outperform the industry. Barbie grossed $162 million in its opening three days, an additional $26 million on each of Monday and Tuesday, the highest grossing Monday and Tuesday ever for Warner Brothers and $93 million on its second weekend, also a Warner Brothers record. To date, Barbie has grossed $366 million. Oppenheimer grossed over $82 million on its opening weekend, $46 million on the second weekend, and $181 million to date. This is the first time that a three-day weekend had a film open to $100 million, while another opened to $50 million. The Barbenheimer weekend was the highest-grossing three-day weekend since the pandemic and the fourth biggest weekend ever. Importantly, this box office outperformance was not fueled by franchises or comic book characters, but by two unique, universally well-reviewed, standalone movies, one about an iconic Mattel Toy, and the other, a historically accurate, R-rated three-hour movie about the development of the atom bomb. Barbie and Oppenheimer demonstrated that content can come from anywhere and be compelling in the hands of a good storyteller. Each reached broad demographics and together they created a cultural phenomenon reminding everyone of the power of good storytelling on the big screen. We are optimistic about the remainder of the year with Teenage Mutant Ninja Turtles, Mutant Mayhem, which opened this week. Killers of the Flower Moon, Hunger Games: The Ballad of Songbirds and Snakes, Napoleon, and Aquaman and the Lost Kingdom rounding out the rest of the year. Finally, there is a lot of press coverage of the writers and screen actors strikes. As Greg mentioned, it's been reported that the studios and writers are scheduled to meet for the first time in three months tomorrow. Beyond that, we don't have any information on the timing for resolution of either strike, but for now, there's been limited movement of major titles into 2024.

Mark Peterson, Executive Vice President and CFO

Thank you, Greg. Today, I will discuss our financial performance for the second quarter, provide an update on our balance sheet, and close with providing 2023 earnings guidance. We had another strong quarter of results with FFO as adjusted of $1.28 per share versus $1.17 in the prior year, up 9%, and AFFO $1.31 per share, compared to $1.23 in the prior year, up 7%. Now moving to the key variances by line. Total revenue for the quarter was $172.9 million versus $160.4 million in the prior year. This increase was due to improved collections from cash basis customers, the effective acquisitions and developments completed over the past year, and scheduled rent increases. During the quarter, we collected a total of $7.8 million of deferral payments from customers, of which $7.3 million was from those on cash basis accounting that was recognized as additional revenue. Per court order, we also received an additional stub payment from Regal related to September 2022 minimum rent of approximately $0.7 million that was recognized as additional revenue this quarter. I will discuss how we expect cash basis deferrals and Regal's bankruptcy settlement on July 31st to impact the remainder of this year and 2024 when I go over guidance. Percentage rents for the quarter increased to $2.1 million versus $0.5 million in the prior year, primarily due to improved performance at one ski property. On the expense side, G&A expense for the quarter increased to $15.2 million versus $12.7 million in the prior year, due primarily to higher professional fees, including those related to the Regal resolution, as well as higher payroll costs, including non-cash, cash share-based compensation expense. During the quarter, we recognized an impairment charge of $43.8 million, primarily related to eight of the properties surrendered by Regal based on third-party appraisals. This charge is excluded from FFO as adjusted. Interest expense net for the quarter decreased by $1.7 million compared to the prior year due to an increase in interest income on short-term investments and an increase in capitalized interest on projects under development. Lastly, FFO as adjusted from joint ventures for the quarter was $1.5 million versus $3.4 million in the prior year. The decrease was due primarily to non-recurring government incentives received in the prior year at our experiential lodging properties in St. Petersburg, Florida, as well as higher interest expense resulting from the refinancing of these properties last year.

Greg Silvers, Chairman and CEO

Thank you, Mark. As I stated in my opening comments, we are pleased to have delivered a favorable Regal outcome, which combined with the Santikos acquisition means that three of our top four cinema tenants now have very high-quality balance sheets with minimal risk. Given these improvements in credit, the continued success of our non-cinema portfolio, and the demonstrated consumer preference for out-of-home entertainment, we continue to believe that EPR offers a very attractive value for investors with a well-covered dividend and an opportunity for multiple expansion. With that, why don't I open it up for questions.

Operator, Operator

Thank you. We will now conduct the question-and-answer session. Our first question comes from Joshua Dennerlein of BofA. Your line is open.

Joshua Dennerlein, Analyst

Yes. Hey, everyone. Good morning.

Greg Silvers, Chairman and CEO

Good morning, Josh.

Joshua Dennerlein, Analyst

I just wanted to ask about the writer strike. At what point would the strikes start to impact your portfolio or the movies being released? I'm just curious if there's any risk to 2023 box office within the strike and certain restrictions around the accessibility to market during the strike?

Greg Silvers, Chairman and CEO

Josh, what we know right now is there has been limited title movements yet. Again, it could be a potential if we see, I mean, the product that we've seen for the balance is generally done for '23, but it really begins with studios if they're going to move product either to be supported promotionally by the actors or two, if they have any last minute kind of reshoots. So it's really in the purview of the studios. So we don't know right now. I think the only what we would call bigger title. We've had one move that we're aware of. Everything else right now is standing path. Hopefully, as we've talked about, as there is beginning to be some discussions that, that will prove very fruitful and we can quickly move to kind of resolution of this and have little to no impact. But Greg, I don't know if you have…

Greg Zimmerman, Executive Vice President and CIO

No, I think you've covered it, Greg.

Joshua Dennerlein, Analyst

Thanks for that. And for 2023 guides, sorry if I missed this, is there any percentage rent included in your guidance range for the back half of the year?

Greg Silvers, Chairman and CEO

Yes, yes. Oh, yes for the back half of the year, yes, we said that for percentage rents for the year are going to be $12 million. And as I said, percentage rent as it has been historically is kind of heavily weighted to the fourth quarter. So we expect about 50% of it in the fourth quarter and the remainder of what wasn’t recognized in the first six months to be in the third quarter. So yes, there's definitely percentage rents in the back half. None related to Regal, if that was your question, those that percentage rents based on lease year and we expect that to hit next year depending on box office.

Joshua Dennerlein, Analyst

Okay. Perfect. Yes, that was what I was trying to get at. I appreciate it.

Greg Zimmerman, Executive Vice President and CIO

Thanks, Josh.

Operator, Operator

Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is open.

Todd Thomas, Analyst

Yes, hi. Sorry about that. Just first question, so appreciate the detail in the earnings slide around the deferred rent payments and other revenue collections in the third quarter and really through 2024. So just to be clear, so after the incremental $11 million you expect to see in 3Q, or $0.14, the decrease in 4Q versus 3Q that you're anticipating, that gets us to a relatively clean run rate in the fourth quarter as we think about 2024? Is that the right way to think about it in terms of, all the non-recurring items, it'll just leave us with a pretty clean run rate beginning in fourth quarter of this year?

Greg Silvers, Chairman and CEO

Correct. We only expect about $300,000 to impact as far as deferral and these kind of out period stuff to impact the fourth quarter. I think the fourth quarter will give you a clean run rate, but remember we have some seasonal businesses and so forth and percentage rents, heavily weighted to the fourth quarter. So there are other adjustments rather than just taking it times four to do, but it is a clean number as far as deferrals and stub payments and so forth. And like I said, only a very small number expected to be recognized in Q4.

Todd Thomas, Analyst

Got it. Okay, and then can you comment a little bit more on the theater sales? It sounds like there is interest from other existing theater operators. I'm just curious, if you can discuss the potential timing and how we should think about those carry costs, sort of, coming offline?

Greg Zimmerman, Executive Vice President and CIO

Sure, Todd. It's Greg. So historically, over the last 2.5 years, we've sold 10 theaters, six of those were for non-theater use, four for theater use. So that kind of gives you the goalpost. We needed to wait to market these because Regal hadn't notified the individual theaters that they were closing and we wanted to be mindful of their employees, et cetera. So we really only started hard marketing last week, but we were out soft marketing before. I'd say of the 11, we've had interest of some sort in about eight. We're already approaching labor days, so the idea of being able to get something closed this year might be difficult given the timing of real estate transactions, but I would expect we'll start to see a cadence toward the end of this year and into next year for selling those. And again, if you look at the run rate over the last 2.5 years, we saw about three or four year.

Todd Thomas, Analyst

Okay. And do the discussions that you're having, negotiations at all. Are they impacted at all by the strikes that are ongoing right now, or is that not really a consideration? And then separately on the strikes, Greg, I'm just curious, to the extent that there is a resolution here, if the strikes are extended a little bit further here, but you get a resolution. I mean, how quickly does production re-ramp and the release schedule get back on track to the extent that there are some delays here? Any sense there?

Greg Silvers, Chairman and CEO

So, Todd, I'll take the first part and then I'll let Greg answer the second part. Actually, I would say the answer is there's zero impact from the strike. As Greg mentioned in his remarks, the fact that Santikos was willing to buy Southern clearly shows that people are seeing the continued recovery of theatrical exhibition. And obviously that's amplified by the just unbelievable success of Barbie and Oppenheimer, which just as I said before, record-shattering. So, we actually have quite a bit of interest from theatrical exhibitors for some of these theaters.

Greg Zimmerman, Executive Vice President and CIO

Yes. I'll echo Greg's comments. I don't think it's actually a big impact, but I think most people in the industry are seeing this as a short-term issue. I mean, if you think about, these have occurred periodically, I think they're more encouraged by all the studio's commitment to theatrical and how it is bound back. And I would say there's probably more rather than less optimism right now in the theater space. As far as turning it on and ramping up new production is really about probably not now into the latter half of '24 and '25. Most everything through the first half of '24 is in post-production and so there's just, kind of, small minor reshoots or voice over or promotional aspects of it. So I would think we believe that really right now, if we solved it sooner rather than later, we'd have minimal impact on '24.

Todd Thomas, Analyst

Okay, great. Thank you.

Greg Silvers, Chairman and CEO

Thanks, Todd.

Operator, Operator

Thank you. Our next question comes from Eric Wolfe with Citi. Mr. Wolfe, your line is open.

Eric Wolfe, Analyst

Hey, thanks for taking my questions. So I understand your comment about the restructuring agreement not providing any sort of extra percentage rent from Regal this year. But just to confirm that the $12 million that's in your number, that doesn't include any sort of Regal contribution whatsoever? And then if I were to think about, you know, let's just say the box office next year is $9.4 billion in line with that presentation you put out, is all of the Regal percentage rent and all of that extra operating income sort of incremental to 2024 or some of that being included in the 2023 guidance?

Greg Silvers, Chairman and CEO

So none of the percentage rents or operating theater profit is in ’23 guidance, because the percentage rents are lease-year driven and it really will hit sort of second and third quarter next year. And as far as operating theater, while there could be some profitability, we're budgeting that or including our guidance sort of a breakeven amount this year. And then as Regal transitions to both Cinemark and Phoenix. And then as we go into next year though, we definitely expect those to be profitable. I think in our presentation, we said to the tune of about $6 million. So none of that's in this year and should hit next year.

Eric Wolfe, Analyst

Okay. So regarding the $9.4 million box office, I noticed you mentioned $14 million in percentage rents and operating income in your presentation related to the restructuring agreement. I'm wondering how much variability there could be around that figure, assuming the box office reaches $9.4 billion. Could it potentially range from $10 million to $18 million? I'm interested in understanding the variability around those numbers based on a certain box office level. Thanks.

Greg Silvers, Chairman and CEO

Yes, I think you mentioned a $14 million number that's the deferral and stub payments for ‘23 in our presentation for Regal. The number we put at that box office of around $9.4 million was $8.7 million…

Greg Zimmerman, Executive Vice President and CIO

And he's combining the two, $8 million and the $6 million.

Greg Silvers, Chairman and CEO

Oh, the $6 million. Okay, gotcha. So first of all, I think one of the benefits as we set that number basically at trailing 12 months, I think 2022.

Eric Wolfe, Analyst

Yes, I mean, again the…

Greg Silvers, Chairman and CEO

We should consider the variability. The percentage rent was really contingent on Regal maintaining its current market share. So could it fluctuate? Historically, they have maintained that market share, but with some theaters closing, traffic may move to different locations, which could lead to a slight increase. The variability will primarily come from the operation of new theaters. Fortunately, they are taking over these theaters now and we didn't factor in any budget for them, giving them four to five months to adjust. If the box office performs well, I believe we will be in good shape.

Greg Zimmerman, Executive Vice President and CIO

We put together a schedule in our Regal presentation that kind of showed that variability. So if box office, for example, was at $9.4 million, it was $9 billion percentage rents of sort of $8.7 million and $7.1 million. And in profitability of the operating theaters. You can see that variability on the chart that we showed in our Regal presentation to kind of vary based on box office. Now as Greg said, there's other things that could impact the individual performance of theaters versus box office, but the primary indicator of performance for both the percentage rents and operating theater profit is box office.

Eric Wolfe, Analyst

Got it. That's very helpful. Thank you.

Operator, Operator

Thank you for your question. Our next question comes from RJ Milligan with Raymond James. Your line is open.

RJ Milligan, Analyst

Good morning everyone. I want to address the box office projection questions from a different angle. On slide seven, you mention the projections, which appear to reflect the median estimates from various analysts for the box office predictions for 2023 and 2024, $9 billion and $9.8 billion respectively. I’m wondering if there have been any changes in that mean estimate for 2023 or 2024, especially considering the writer strike. Additionally, I think Josh raised a similar question, but I’m interested in how long it will take before you revise your internal projections, which are $9.4 billion for last year and $9.8 billion for 2024, to align with these numbers. How long does the strike need to continue before you re-evaluate those estimates and possibly decide to lower them?

Greg Silvers, Chairman and CEO

Yes. Regarding the $9.4 billion, this figure pertains to the period from July 31st to next year. As long as we don't see many titles get postponed, that number seems solid because it reflects the latter half of this year and the first half of next year. The risk lies in a prolonged situation, which could affect the $9.8 billion estimate for the second half of next year. However, the positive aspect is that this trajectory may balance out. If we initially estimated $9 billion and $9.8 billion, it could level off to $9.2 billion for both. Currently, we are not making any adjustments since we are only aware of one film with significant changes. We have seen strong performance so far that has offset that issue. For this year, we haven't noticed many deviations, and if anything, people might be increasing their expectations for this year, but they are holding steady for now.

Greg Zimmerman, Executive Vice President and CIO

No, I agree. I mean, I think, RJ, the critical point is that whatever movie might have moved has been more than offset by the outperformance of Barbie Oppenheimer and…

Greg Silvers, Chairman and CEO

Sound of Freedom.

RJ Milligan, Analyst

Got it. But the Barbenheimer duo is not in your lease year for renewal. When you…

Greg Zimmerman, Executive Vice President and CIO

Yes. Yes.

Greg Silvers, Chairman and CEO

Some of it will be. Right now, we're in the last week of the Barbenheimer period. As you know, Greg noted it's the second highest weekend ever. We're still benefiting from this; if you talk to someone in the industry in August, even this weekend where we're looking at probably approaching or exceeding $100 million from those two films is a really strong August.

Mark Peterson, Executive Vice President and CFO

Plus Teenage Mutant Ninja Turtles.

RJ Milligan, Analyst

Thanks for the information. I appreciate the clarity regarding the deferral and other revenue collections. Mark, I'm considering the 2023 guidance and how it relates to 2024. It seems that there will be around $35 million in lower stub and deferral payments expected from 2023 to 2024. Additionally, there's a $17.8 million decrease in Regal rent, totaling approximately $52 million that will impact the transition from 2023 to 2024. What else should I account for, such as the operating theater profit and the percentage rents?

Mark Peterson, Executive Vice President and CFO

Yes. Let me take that a little differently because I think maybe the Regal part of that might have been a bit overstated. So if you take the $5.10 guidance this year, as you mentioned, we have $35.7 million most of which is non-recurring, that's worth about $0.47 gets you to $4.63. As far as Regal, if you think about it, we had once you get rid of all those deferrals, which I just did in stub payments and so forth, you end up with really we had seven months of full income in ‘22 that we don't expect in ’23, because the last five months will be the same for both periods. So you have seven months. So if you take those seven months, it was around $7.3 million a month is what the old rent used to be and you take about 22% of that because that was the base rent cut. That's worth about $11 million year-over-year. So base rent going down $11 million. And then you have to add to that what you said, the percentage rents, let's call that $8.7 million we'll take a look at that as we give guidance in February, but that's what we put out and it seems to be tracking. And operating theater property profits of another $6.3 million, that's $15 million going the other way. So it's actually once you back out deferrals and all those noise for Regal, Regal is actually going up next year, again, subject to box office, up about $3.7 million. And then as we mentioned, we're also putting Regal on accrual basis accounting, which is worth about another $2.5 million. So kind of a $6.2 million increase for Regal. So again, you take the $5.10, subtract the $4.7 here at $4.63 add in about $0.08 for the Regal impact, you're kind of sitting at $4.71-ish before any growth from this year and next year and all the other puts and takes in G&A and so forth. But that kind of gives you a sort of a starting point.

RJ Milligan, Analyst

That’s very helpful. That’s it from me guys. Thank you.

Mark Peterson, Executive Vice President and CFO

Thanks, RJ.

Operator, Operator

Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Your line is open.

Michael Carroll, Analyst

Yes, thanks. I guess not to belabor the writer's strike, but Greg Silvers, I believe on the June call that you highlighted that if the writer strike was resolved in 40 to 50 days post that end of June call, that there'll be minimal to no impact. I guess that would put us into mid-August. So, I mean, if we get in through mid-August and this is not resolved, is that when we should start thinking about this could be having an impact on some of these movie delays?

Greg Silvers, Chairman and CEO

Yes, I think we still stand by that. What I mentioned was that we expect it to be later in 2024. Studios could adjust their release schedules, and we are only shifting titles from 2023 to 2024. If we see strong performance in 2023, studios might want to mitigate risk by moving some releases into 2024. However, as we approach August and September, we should begin to determine if titles are shifting and whether there is progress in discussions. I'm not sure if this aligns with your thoughts, Greg, but I believe that reasoning still applies, Michael.

Michael Carroll, Analyst

Okay. That sounds good. We should also consider that while you have leases for many of these theaters, which won't be affected, the Regal percentage rents from your operating theaters will be impacted. How much percentage rent do you have beyond the Regal restructuring that might be affected by those changes?

Greg Silvers, Chairman and CEO

It's very minimal.

Greg Zimmerman, Executive Vice President and CIO

Yes, our percentage rent, for example, this year is non-theater related.

Michael Carroll, Analyst

Okay, great. and then going to back to the investment market, I know you talked a little bit about the 11 assets held for sale, but what about the value for like the high-quality theaters? I mean, is there a market forming where you could potentially sell some of your higher-end type assets, theater assets? Is there starting to be interest out there?

Greg Silvers, Chairman and CEO

I believe there is always interest. As Greg mentioned, some of the 11 properties we are planning to sell may be converted to non-theater uses. It's really about determining the highest and best use of these assets. If we look at the theater we sold this year, which Greg just reported on, we achieved a low-single-digit cap rate based on previous rents, even though it's going to a different type of use. Greg and his team, along with our asset management team, are focused on identifying the optimum use for these properties. It's encouraging to see theater operators starting to bid on these assets, but we must also consider whether these properties might serve a higher purpose that competes with their current theater use.

Greg Zimmerman, Executive Vice President and CIO

Yes. And Michael, to the extent you're talking about selling theaters as theaters for cash flow, we're starting to see some green shoots there. And again, I think the fact that Santikos was willing to buy Southern shows that the theatrical exhibition business is recovering nicely.

Michael Carroll, Analyst

Okay, great. Thank you.

Operator, Operator

Thank you. Our next question comes from Jyoti Yadav from JMP Securities. Your line is open.

Mitch Germain, Analyst

Hey, guys. It's Mitch here. I think a lot of the Regal and other topics have been covered. I was curious a little bit about some of the dispositions. Greg, I think you said that there were the vacant assets, but I'm curious about potentially considering maybe some non-core or even core dispositions here, in this environment on top of, you know, kind of what you're doing with Kinder Care and Regal?

Greg Silvers, Chairman and CEO

We will always consider various options moving forward. We've had a lot of activity recently, especially with Regal's situation, and it's worth noting that our fourth largest tenant has changed ownership. Throughout the quarter, there's been a lot happening. We're managing several dispositions at this time, but we will assess all these aspects as we work to clear the challenges we faced in the first half of the year. Looking ahead, we see some encouraging trends. Three of our four largest theater tenants are improving their financial positions, with Regal expected to have a debt-to-EBITDA ratio below 2, and Santikos possibly having minimal to no debt. We have dedicated significant effort to enhance our theater portfolio, and both Greg's and Mark's teams are positioning us well with strong theater tenants during this recovering box office period. Our focus has been on getting these elements right. As we move forward, we have the chance to generate additional capital, and Greg has pointed out that we have solid opportunities. We will balance our operational strategies, which are performing strongly, with our intent to reduce theater exposure. As the market rebounds and capital starts flowing back into exhibition, we expect to see more opportunities arise. We are optimistic about our ability to raise capital and how the market will respond to the improvements seen in the exhibition sector as well as the quality of our tenants during this recovery phase.

Greg Zimmerman, Executive Vice President and CIO

I think that's right.

Mitch Germain, Analyst

Great, last one for me. I know that, you guys went over some of the puts and takes from ‘23 to ‘24. I'm curious how much G&A in ‘23 was allocated to Regal that, you know, kind of doesn't recur heading into ’24?

Mark Peterson, Executive Vice President and CFO

Yes, it's probably around a couple of million dollars actually that was kind of prolonged and a lot of work went into that. So we do expect G&A to come down next year.

Greg Silvers, Chairman and CEO

Thank you, Mitch.

Operator, Operator

Thank you. I'm showing no further questions at this time. So I would now like to turn the conference back to Greg Silvers for closing remarks.

Greg Silvers, Chairman and CEO

Thank you, Theresa, and thank you all for joining us. Again, we look forward to talking to you in the coming months. And as always, if you have any questions, be sure to reach out. So thanks, everyone, and have a great day. Bye-bye.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.