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Entertainment Properties Trust (NYSE:EPR)

Q1 2009 Earnings Call Transcript

May 7, 2009 11:00 am ET

Executives

David Brain - President and CEO

Mark Peterson - CFO

Greg Silver - COO

Analysts

Jordan Sadler - KeyBanc Capital Markets

Anthony Paolone - JPMorgan

Michael Bilerman - Citigroup

Greg Schwartz - Citigroup

Paul Adornato - BMO Capital Markets

Operator

Good day, ladies and gentlemen and welcome to the first quarter 2009 Entertainment Properties Trust earnings conference call. (Operator Instructions).

I would now like to turn the call over to Mr. David Brain, President and CEO of Entertainment Properties Trust. Mr. Brain, please proceed.

David Brain

Thank you everybody for joining us this morning. This is David Brain. Let me start with our usual preface, which is as follows, as we begin this morning, I would like to inform you this conference call may include forward-looking statements defined in the Private Securities Litigation Reform 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 conditions, results of operations may vary materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause actual results to differ materially from those forward-looking statements is contained in the company's SEC filings, including the company's report on Form 10-K for the year ending December 31, 2008.

Let me say again, thank you for joining us. We always appreciate your investment of time and interest particularly today in a time of volatility and seaming capital markets rehabilitation.

With me to provide you all the company news and updates, of course Greg Silvers, our Chief Operating Officer, and Mark Peterson our Chief Financial officer. As we get underway this morning, please remember there is a simultaneous webcast available via link from our website at eprkc.com. If you can, please go there now for the visual dimension as well as this audio portion of the presentation.

Going to the first slide, here are your headlines for EPR. Earnings, although not entirely satisfactory are consistent with expectations and guidance, portfolio tenant fundamentals are ascending in start contrast to general headline, economic reporting and third development project challenges are being met and be cleared impart and impart with some delays and adjustments in income, but no investment write-downs.

I'll elaborate on this headlines a bit. Mark will go through the detail on the financials, Greg about our capital spending and the portfolio status information and then you can of course join in with your questions.

As I make my comments, I want to refer you, importantly to our press release as well as regularly for your quarterly reporting, please note our earnings press release as greatly expanded to accommodate detailed discussion of a variety of topics, particularly our development project investments.

I want to start with the first headline with our per share performance for the quarter. This is the first time, I think I had ever use the term decline in reporting EPR's financial results. We have made a habit of quarterly ascending per share performance for over a decade. As I have often noted you for the last five years of more, it is generally been double-digit increases.

The financial results we're reporting this morning are not acceptable, but the good news is twofold. The primary reasons for less than stellar results this quarter are few in number and in the process of being fixed.

Our per share reported results and guidance of $3.40 to $3.60 FFO and $2.60 dividend more than support our recent stock trading range in the mid 20s and even multiples of seven times FFO and dividend yield in excess of 10%. Our FFO per share this quarter was up $0.84 was year-over-year by $0.27.

As we pointed out in our press release $0.24 or 90% of this reduction can be attributed to our change to recognize income from our current major development projects on a cash rather than accrual basis.

As I said before and we'll discuss further, these are solid projects with in place or committed traffic anchor. There are challenge not by their specific performance rather by the financing environment generally.

For the income recognition change and a $0.04 per share write-off due to Filene's Basements' bankruptcy, our FFO would have been up 7% over the prior year and consistent with our original 2009 guidance, given in our last quarterly call.

If you remember during that call, I specifically walked through a potentially adjustment to FFO guidance of about $0.50 per share and a dividend reduction of about $0.35, if we deducted all development project returns for project with our full completion financing in place.

On March 10th, as a part of our first quarter 2009 dividend announcement, we clearly stated we are invoking the previous mentioned adjustment to our guidance. We were taking non-cash income related to our major development projects out of our guidance. This is how our dividend guidance went from $3 to $2.60 per share.

Unfortunately, this revision was largely ignored by the analyst community, so there is an appearance of an off-guidance performance, but this is not the case. To be clear, I will say again, we've taken all non-cash aspects of our major development projects out of our guidance. We are not counting on anything from the Concord Project this year, zero.

The Toronto Life Square Project has been taken out for nearly three quarters of the year, our expected period to accomplish our in court restructuring process. Schlitterbahn is counted on only for the cash pay portion of our recently completed restructuring that is fully described in our press release with its enhanced collateral and funding elements that I will not repeat here.

I want to be clear about the promises for our guidance and I want also to be clear that I believe with this highly conservative guidance position there is consumable opportunity for upside performance.

Our second headline is that our tenant portfolio fundamentals are ascending and start contrast to general economic reporting in other retail categories and segments. I often point out box office performance on this calls because I am not sure everyone has not noticed current trends. This one you can't miss.

The robust performance of the first run exhibition box office has been carried on every major media outlet in conspicuous fashion because of its contrast to the otherwise sagging economy and retail landscape.

Box office is up about 15% year-to-date and this is not just due a couple of films or a couple of weekends. Broadly, deeply across months in content box office revenue and attendants are up repeatedly and significantly. Please note we do have a better diverse in our tenant base but still over 15% of our investments are specifically theaters and about 70% or either that are theater traffic related retail. This is great news and I believe still underappreciated in the market place.

Further as I have explained in prior calls, but won't detail now this is just the beginning of a growth cycle that will enlarge with the expansion of our properties media platform and content breadth and thus enhancement of our financial performance and value as well.

Now I just alluded to our tenant diversity and let me update you there as well. Our ski properties completed their season in the first quarter with revenues of less than 1%, but with record profitability. Season pass sales for next season have already begun and are running ahead of last year.

The domestic wine industry has recorded solid increases in three out of the four months of 2009, with the first two months displaying about 7% year-over-year gains with a fall of 1% to 2% in March, but April showing strength again with a reported 9.5% gain over 2008. I don't have any specific charter school update to offer you beyond the material in enrollment in occupancy gains already reported to you in our last call for the current school year.

Our third headline, development project challenges are being met and being cleared in part with income delays, but no write-downs is a message of both progress and ultimate investment reliability. Each of our three major development project investments is discussed not only in our quarterly filings but also as I said in our earnings press release in great detail and clarity.

Both Mark and Greg have comments on these and with all that I won't go through a lot of details, but want to point out a couple of highlights. Number 1, our issues associated with the Schlitterbahn water park development are concluded with favorable results and hold the promise of consumable upside.

We have restructured our arrangements to provide us with greater and more tangible collateral and credit support. The park will open this summer season. We have no near term maturity and loans and trip wire associated with this investment. We feel we have a reasonable base cash paid return on our investment assets and considerable improvement potential correlated with the performance of the Schlitterbahn water park portfolio and/or the further development of our remaining land inventory at that side of approximately 300 acres.

Number 2, our Toronto Life Square investment has been taken completely out of our guidance for about three quarters of the year, despite the fact that it is completed, about 90% occupied and generating cash flow in excess of the first mortgage requirement. The reason for this is we put this investment on a cash recognition basis and expect operating results that are due to us to be held away from us during the Canadian Court Supervise Receivership process we have began.

We expect the result of this process to be positive with either our investment amount or the asset delivered to us either result desirable. Importantly please note this asset was reappraised during the quarter and although it's value fell it is still well in excess of our investment exposure.

Third, our Concord development project investment continues to progress but just as it was of our three major development projects in the early stages at the collapse of the credit market, it is also the one taking the longest to reach a productive conclusion. Because of it's uncertainties we've removed any financial contribution from that investment from our guidance for the entire year.

It is counted for zero. It has no earnings reporting downsize. Serious and substantial negotiations are underway regarding progress on this project that we cannot discussion in detail, but we can say that with the posture we have taken the results hold only the prospect of an upside impact on guidance as we have included it at a zero contribution.

Importantly we undertook a reappraisal of our underlying collateral during the quarter and received support for value well in excess of our current investment position and thus have no write-down of our investment value. Now all those land inventories at this time a severely constrained capital market particularly development financing are viewed skeptically as to the current value, you don't have to look very far to understand the value here.

Many of you might be somewhat aware of a New York state budget problem and the aggressive moves being made by elected officials on many levels to advance the cause of casino gaming in that state and further how those efforts and initiatives are centered on the traditional entertainment areas of the Catskill Mountains, the side of our land investment interest.

These facts and movements coupled with our investment position in assembled and importantly, fully development entitled land are supportive of significant value.

We look forward to reporting more progress and resolution regarding this project and a resulting appropriate upward revisions and guidance.

I will now turn it over to Mark and Greg for their comments and join you for your questions in a minute.

Mark Peterson

Thank you, David. Let me begin with the review of the numbers from our recently completed first quarter.

As you can see on the first slide, our net income available to common shareholders decreased 17% compared to last year from $21.5 million to $17.8 million. Our FFO also decreased 9% compared to last year from $31.8 million to $28.9 million. On a diluted per share basis, FFO was $0.84 compared to $1.11 last year for a decrease of $0.27 or 24%.

As David mentioned, we are usually talking increases, not decreases. So I wanted to give you some upfront context as to what impacted the numbers this quarter.

As you have probably read in our earnings release, this quarter’s results were significantly impacted by our policy to record interest income from notes receivable on a cash basis rather than on an accrual basis when the expected timing of receipts significantly differs from the contractual terms.

Although the underlying circumstances are different, we had the same accounting result for two of our significant mortgage notes related to Toronto Life Square and Concord with balances outstanding of approximately $101 million and $133 million respectively at March 31st.

From an accounting perspective, each of these loans has been impaired this quarter since payments have not come in according to the contractual terms and future payments are also not expected to come in according to the contractual terms.

However, it’s important to not confuse loan impairment with loan loss. In each of these cases, the management of the company has determined the fair value of the underlying collateral. Taking into account, a recent property appraisal, is in excess of the carrying value such that no loan loss reserve is necessary.

However, what this does mean to the company is at beginning January 1 2009, only interests actually collected in cash on these notes will be recorded as interest income. This is the accounting treatment even if the underlying collateral value could support a carrying value including accrued, but uncollected interest.

We communicated our expectation of this accounting on Toronto Life Square project during our last call. Because certain payments were not made to us when due in March and the property was subsequently placed in to receivership as Greg will discus in his comments.

We ceased recurring current interest income as of January 1st That’s $4.5 million in Canadian or $3.8 million US was not recorded in the financial statements for the quarter and this reduced FFO per share by $0.11

With respect to Concord the facts and circumstances have changed since our last call. The developers ceased making interest payments during the quarter on the Company’s outstanding mortgage note receivable. As a result, the developer’s interest obligation under the effective interest [math] of $4.6 million or $0.13 per diluted common share was not recognized in the Company’s financial statements.

Additionally the developer, both personally and through related entity has $20 million of notes outstanding with the company unrelated to the Concord project, that were due and payable during the quarter. The Company did not extend the maturity of either note and the notes were not repaid for their contractual terms. Therefore, the company also began recognizing the interest income related to these notes on a cash basis during the first quarter and $167,000 or approximately $0.01 per share of the borrower’s interest obligation was not recorded in the financial statements.

I want to point out that when the first quarter dividend was determined, we chose to be conservative on Concord and the $20 million of other notes from parties related to the Concord developer and as soon as that no cash interest income would be received during 2009.

As I will describe later, we are formally updating our FFO guidance to be consistent with the assumptions related to these items, underlying that dividend announcement.

This quarter’s results were also impacted by a non-cash expense of $1.5 million, or $.04 per share, related to a receivable at December 31, 2008 from Filene’s Basement. Filene's declared bankruptcy on May 4, 2009, and such amount was fully reserved during the quarter.

And moving to the next slide. In summary, we had three main items that account for $0.29 of the year-over-year decline in FFO per share. $0.11 related Toronto Life Square mortgage, $0.14 related to the Concord mortgage and developer notes receivable and $0.04 related To Filene's bad debt.

Now looking at details of our first quarter performance. Our total revenue increased 1% compared to the prior year to $66.7 million. The decrease in the Canadian dollar exchange rate reduced total revenue by about 3%.

Within the revenue category, rental revenue increased 3% to 50.4 million, an increase of 1.3 million versus last year. Percentage rents included in rental revenue were $438,000 versus $576,000 in the prior year.

Tenant reimbursements decreased 18% or 1.1 million. This decrease is primarily due to vacancies related to certain non-theatre retail tenants and the decrease in the Canadian dollar exchange rate.

Other income increased $429,000 to $1.1 million, this decrease is due to approximately $500,000 in gains recognized on settlement of foreign currency forward contracts during the first quarter of 2009.

Mortgage and other financing income was $10.5 million for the quarter for an increase of $0.2 million versus last year. This increase is due to our investment in the direct financing lease in the second quarter of 2008 related to charter schools, partially offset by less interest income recognized during the first quarter of 2009 due to the impairment of certain mortgage and notes receivable.

On the expense side, our property operating expense increased $1 million for the quarter. This increase is primarily due to an increase in bad debt expense versus the prior year of $2 million, $1.5 million of this increase is related to Filene's bad debt, which I discussed earlier. Partially offsetting this increase was the decrease again due to the change in the Canadian dollar exchange rate, as well as a decrease in operating expenses for the first quarter of 2009 versus the prior year at certain of our entertainment retail centers.

Other expense was approximately $618,000 compared to $936,000 last year, the decrease of $318,000 is primarily due to expense recognized upon settlement of foreign currency forward contracts during the first quarter of 2008. As I discussed earlier, during the first quarter of 2009, a gain was recognized.

G&A expense decreased $288,000 versus last year to approximately $4.1 million for the quarter. This decrease is due primarily to a decrease in cost associated with terminated transaction during the first quarter of 2009 versus the first quarter of 2008.

Equity and income from joint ventures decreased $1.1 million versus last year to $219,000. This decrease is the result of our acquisition in April of 2008 of the remaining 50% interest in a joint venture that owned 12 public charter schools.

Net loss attributable to non controlling interest formally minority interest was $1.2 million for the quarter and as in the prior year relates primarily to our White Plains investment, which is excluded from reported FFO.

The change in terminology on our income statement relates to the implementation of FAS 160 titled non controlling interest in the solid financial statements, but these new standard had no effect on the bottom line.

Finally, this quarter's per share results were negatively impacted by a $0.01 due to the January 1 2009 implementation of FAS, the statement position EITF 03-6-1, titled Determining whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. Prior-period per share data was adjusted retrospectively was also reduced by $0.01 by the adoption of the standard.

Now turning to the ratios for the quarter, interest coverage was 3.1 times, fixed charge coverage was 2.2 times, and debt service coverage was 2.3 times. All of these ratios remain very healthy.

Now turning to the next slide, I want to give you an update on our recent capital markets activities, as well as update you on our liquidity position. As discussed in our last earnings call, we exercised our extension option on our line of credit to extend the maturity date to January 31st, 2010 with all other terms remaining the same.

This means we have no 2009 debt maturities. We have also recently launched the renewal process for this line that is expected to bring the maturity date to October of 2011 with the one year borrower option that would allow to go out to the October of 2012.

Disruption in the credit markets means that a new facility new facility with higher pricing and other more restrictive terms, but our guidance has always contemplated an increase in revolver borrowing cost for the later half of 2009.

Although there can be no assurance regarding the ultimate outcome and timing of our revolver renewal efforts. We have very strong support from the banks that provide a largest commitments in our current facility and we are seeing strong interest from new institutions. We look forward to communicate in the closing of our new facility.

Moving to the next slide, we continue to de-leverage our balance sheet during the quarter and we are down to 46% on a booked basis at March 31st. As we discussed in our last call, during January and February of 2009, we issued 1.9 common shares through our DSPP, the Direct Share Purchase Plan, and used the proceeds to reduce the balance outstanding on our revolver. These shares were sold at an average price of $23.57 per share, and total net proceeds after expenses were approximately $44.3 million.

Additionally on February 25th 2009, we obtained a $4 million term loan under our winery and vineyard facility leaving $63.3 million still available under this facility. This loan matures in December of 2017 and is secured by fixtures and equipment and bears interest at LIBOR plus 200 basis points.

At quarter end we had total outstanding debt of approximately $1.2 billion of which $1 billion was fixed rate long term debt with a blended coupon of approximately 5.9%. We had $93 million outstanding under our unsecured revolving credit facility at quarter end.

Certainly the focus on today's economic environment continuous to be on liquidity and we continue to maintain strong position in that regard. I would like to reiterate that with the exercise of the extension option on our revolver, we do not have any debt maturities in 2009.

Additionally, excluding our revolver, our only 2010 or 2011 maturity on a consolidated basis that does not have an extension option is the $56 million note related to our Concord investment. It should also be noted that our annual operating cash flows have historically covered our dividends and recurring principle payment. We have once again demonstrated our commitment to this conservative practice in 2009 by setting the quarterly cash dividend at $0.65 per share.

As you can see on the next slide, we have a total of a $164 million of liquidity available on our existing credit facilities and unrestricted cash. This total is comprised of a $134 million of availability on our revolver, $14 million on unrestricted cash and $16 million of availability under vineyard and winery debt facility. When we consider our anticipated investment spending of $39 million for the remainder of 2009, we find ourselves of a cushion of almost to $125 million.

Be clear this analysis excludes any spending or debt proceeds related to the Concord project. Additionally this analysis excludes any spending or proceeds related to the resolution of the Toronto Life Square receivership process.

Greg will provide further details about both the Concord project and Toronto Life Square receivership process during his remarks, but I will first provide some background information on the receivership process and explain the liquidity implications for 2009.

In April of 2009, the company and the bank syndicate who provided the first mortgage construction loan which has an outstanding balance of approximately 119 million Canadian, elected to pursue a receivership after the company was unable to negotiate acceptable restructuring terms with the subordinate stakeholders. The receiver will oversea the sale of the property and we could become the owner of the property if we are the highest bidder or alternatively we could settle our note receivable with proceeds from the highest bidder.

As communicated on our last call, we have two different term sheets for new first mortgage financing should we be the highest bidder. These facilities would provide approximately 100 to 120 million Canadian and therefore we could possibly have to makeup the short fall if any between the new first mortgage loan and the existing first mortgage loan. While there can be no assurance regarding the ultimate success and timing of this refinancing.

If we are the purchaser of the property in the receiver sell process, the project financial results would be consolidated in the company's financial results subsequent to the purchase. As David mentioned we have reflected this outcome in our forecast beginning in the fourth quarter of 2009.

I'll turn you to the next slide, we are formally updating our 2009 guidance for FFO per share to a range of $3.40 to $3.60. This guidance excludes any expenses related to the newly FAS 141R associated with the potential acquisition of Toronto Life Square. We're also updating our investment spending guidance to $60 million which focuses around funding our remaining commitment. This guidance excludes any spending related to the resolution of Toronto Life Square and the Concord project.

The key drivers of the new FFO guidance include Concord for $0.53, the $20 million of notes for $0.04, the impact EITF 03-6-1 for $0.04 and the filing Q1 bad debts for $0.04.

Now I will turn it over to Greg, for his comments on operations and more detailed project update.

Greg Silvers

Thank you, Mark. As you heard this morning, our emphasis this quarter has been targeted at bringing clarity to our three large development projects. As you will note we have significantly decreased our capital spending with only $21 million of investment in the first quarter. The largest portion of this was the continued funding of our Schlitterbahn development to the tune of approximately $10 million with the balance focused on smaller investments in existing projects or developments that were already underway.

I would like to focus some minute on the progress that we have made since our last earnings call on our three large development project. With regard to Schlitterbahn, we discussed our plan on our last call and I am pleased to report to you that we've successfully executed the grain plan that was laid out. I direct your attention to the slide presentation for additional color.

Specifically we have reduced our commitment from $175 million to $163.5 million. We have significantly increased the collateral and cash flow coverage on our mortgage investment by adding two highly successful water parks in Texas to the security.

We have increased the existing interest rate from the existing terms and added participating features which created upside for the investment. We have included features that provide for the annual escrowing of a full years interest obligation and the developer of the project has evidence the necessary additional equity to allow the water park phase to open in the summer 2009.

Based upon last year's cash flow from the existing Texas water park and the pro-forma cash flows from the Kansas park we anticipate a coverage ration of approximately 1.7 on the fixed obligation. Additionally as we've indicated in the press release, the developer has also entered into an option agreement which if exercised could provide a significantly pay down on the existing obligation. All in all we are very satisfied with the restructuring and I believe it is substantially what we forecasted in our previous call.

With regard to Toronto Life Square, if you followed our calls and filings you will note that we've stated many times that this project would likely follow one or two routes. Either the existing partnership would be restructured or the project would go into receivership. It is important to know that we discussed the restructuring of the partnership it was always a negotiation with the subordinate debt and equity holders not the construction loan syndicates.

I have read several notes in which these negotiations have been characterized as a restructuring of the existing construction loan syndicate however this was never the case. We pursued a restructuring with the institutional pension fund and the developer that are subordinate to the bank syndicate and ourselves as a means to expedite the process. However when it became clear that these subordinate interests were unwilling to accept the economic terms under which we would proceed, it was the bank syndicate with the support of EPR that place the asset into receivership.

Although we would have been very happy to have had the opportunity to acquire the assets on an expedited basis and enjoy the accounting treatment of an owned asset, we will simply let the process play itself out. We were heavily involved in the process of the appointment of the receiver and continue to work in concert with the bank syndicate, the receiver and the core.

We do not anticipate any significant disruption in the operation of the property as the entertainment, retail and office portions of the property are significantly leased and the signage is performing in accordance with the plan we discussed in our last call.

With regard to the Concord project, the developer continues to seek the necessary capital to plug the gap caused by the dislocation of the credit markets and the resulting withdrawal of one of the lenders from the original construction loan commitment.

As we stated in our filings, we have stopped funding any additional moneys until certain conditions have been met by the developer including evidence that full funding for the project has been secured and all past due amounts have been paid.

We are in negotiations with the developer to bring about resolution of this matter, however given the confidential nature of these negotiations, I cannot discuss the possible outcomes at this time.

During the quarter, we also took control of our Cosentino wine assets, [via core] process. As we discussed in our last call, the controlling shareholder in the operating entity under our lease elected to replace the professional staff of the winery with certain close associates of the shareholder to the detriment of the winery.

Based upon this performance, we elected to exercise our rights and take control of our assets rather than work through the issues with existing management. We believe this to be in the best interest of our investment and we are currently marketing the assets for sale or release. With regard to occupancy, we continue to have 100% occupancy of our theater assets and 89% occupancy of our non-theater retail assets. The same levels that existed from our year-end call.

I have read several notes expressing systematic concern over our non-theater retail assets. However, I think it is important to look at the history of these assets. If you look over the previous five years, you will notice that our non-theater retail has consistently maintained an occupancy rate of approximately 95%. We now stand at 89%.

However this decrease is almost solely attributable to the large-box vacancies at our White Plains City Center. Absent these vacancies, we are again at 95% occupancy. It should also be noted that the White Plains City Center is substantially different than our normal entertainment retail centers with the reliance on large-box retailers, rather than the strength of the megaplex theatre.

This is not to say that we will not experience vacancies. However, I do think it is important to understand the differences in our properties. With that, I will turn it back over to David.

David Brain

Thank you, Greg. Thank you, Mark. Well all of our presentations have been a little more extended and hopefully a little more illuminating than usual this time.

With all that being said I don’t have to extend it instead of comments before we go to your questions. Just to remind you that the headlines as I outlined to you to begin with, that we feel like really things are on track, consistent with what we have outlined to before as expectations for the company.

That our fundamentals are in great shape and our tenant base largely in the development projects that have the points of challenge we are in the process of clearing up and making progress and importantly those things we have reassessed our investment positions relative to the values of the properties and we are in good shape with no investment write downs. So with all that said, we will open it up to questions and Tania, are you there?

Question-and answer session

Operator

Yes thank you. [Operator Instructions]. And your first question will come from the line of Jordan Sadler. Please proceed.

Jordan Sadler - KeyBanc Capital Markets

Thank you, good morning.

David Brain

Morning.

Jordan Sadler - KeyBanc Capital Markets

The first question just regarding investment opportunities in what you are seeing out there in terms of cap rates maybe as it relates to theater assets or other opportunities that you may see?

Greg Silvers

Jordan, it is Greg. I think there is two distinct groups. There is distressed sellers out there who are looking to raise capital and there is also our traditional theatre operator opportunities. We are seeing opportunities in both areas. The distressed sellers really with prices in accordance with how desperate they are for the capital really without relation to the asset. The other side prices in accordance with the performance of the asset and what the tenant can pay. But there is significant opportunities in both. It's in just with this capital constrained market. We are not at this point exercising on those opportunities.

David Brain

right and to follow on what Greg said I would say those two camps, you probably have a great chasm of cap rate depiction and that is with distressed sellers we see things that 11 cap type things, but just across my desk, a couple of opportunities of very high performance asset and people know in this end market that these are well-received assets and these are non-distressed sellers that are asking 7 caps. Now, I don’t know that those transactions will clear at 7, but there clearly is this chasm between, because the assets are performing well.

Distressed sellers are at high cap rates and non-distressed sellers were at cap rates we even saw year ago.

Jordan Sadler - KeyBanc Capital Markets

As it relates distressed group, I think couple of months ago you had said your buy assist that wait until you see cap rates rising further on some of those assets before maybe raising capital to execute or take advantage. Is that story still be view?

Mark Peterson

We want to get the numbers to where it make sense for us on a capital raise and right now given our price, we're not there but to the good point of the fact that we're known as the player in that arena, indeed our assets and so we continue to see all those transactions, yet everyone is waiting for us to start clearing those transactions.

David Brain

We felt like clearing up some these issues that are kind of vain down stock, we know that some of these development issues is important, we get those clouds cleared, we have then clear sailing and we probably get a better execution of raising capital as well after some of these more offensive and defensive opportunities.

As we hopefully indicated you, we're well in the process of doing that, we got a little more ground to cover, but hopefully we'll be there and we'll off the defensive posture of fixing a few things and we'll be under the offensive posture of taking advantage of good opportunities.

Jordan Sadler - KeyBanc Capital Markets

Can you actually reconcile for me, you seem to still have strong enthusiasm for the Concord project given sort of the state in New York, budget, but can you reconcile that enthusiasm with the decision not to extend the same developers loan maturities?

David Brain

We just thought not to extend because we're keeping all of our Concord available to us to play. We're at this point kind of negotiation on this, we are in the negotiation on this and we wanted to keep all of our options available to us and to extend those notes would have taken options away from us this time negotiation, so we'll keep them in place.

Jordan Sadler - KeyBanc Capital Markets

Do you think that New York state would push even further and maybe try and get the license upgraded to Class 3?

David Brain

Certainly is being talked about and you can go also with the press, not just from us. There are all kinds of discussions about Class 3 licenses in that area, New York coming to full casino gaming. New York has significant problems, New York has been long time exporting significant tax dollars to New Jersey and Connecticut, they know that, they want to reclaim those tax dollars. I think all options are on the table are being discussed at the state and even at the federal level, aiming further non-traditional tribal lands to be Indian gaming facilities as well. So, lot of been have talked about that.

Jordan Sadler - KeyBanc Capital Markets

Where do just stand in the process of the negotiation with the developer? I know he is suppose to be raising additional financing, is that sort of the status quo, he is going to come back to you, when you can raise additional financing, or when the markets open up?

Mark Peterson

That's the primary thing that's going on yes and his efforts to reconstitute the original game plan after the dislocation of many of the committed parties on the financing stack.

Jordan Sadler - KeyBanc Capital Markets

Can you give us the appraisal values on the Concord land? Did you have an updated one, actually on Schlitterbahn by concluding the additional assets you took position of, so what would be the new LTV?

David Brain

Jordan, can you repeat that question?

Jordan Sadler - KeyBanc Capital Markets

Appraisal value on Concord, the 1584 acre track and then the LTV on Schlitterbahn considering the new assets that were added to the collateral?

David Brain

On the appraisal value on Concord, I don't know whether we're in a position to disclose that. It's substantially in excess.

Jordan Sadler - KeyBanc Capital Markets

Even a 50% LTV type range?

David Brain

Essentially yes, it's more than two times.

Jordan Sadler - KeyBanc Capital Markets

And Schlitterbahn?

David Brain

Schlitterbahn, the LTV would be a similar number.

Jordan Sadler - KeyBanc Capital Markets

Thank you.

Operator

Your next question will come from the line of Anthony Paolone.

Anthony Paolone - JPMorgan

Thank you. Is the appraisal value on Concord contingent on the developer being there?

David Brain

No, it's not contingent on a casino even being there.

Anthony Paolone - JPMorgan

I guess I'm having tough time understanding this why this 20 million in those unrelated notes play into Concord, why not just go after the developer for your 20 million bucks?

Mark Peterson

I can't take you through everything, but it really is. We follow the string down with variety of courses of action. One of those course of action is to go ahead and foreclose and we don't think that's favorable right now is to continue to negotiate to get this thing more in place. It would be more disruptive and more extend the realization timeline of our investment, but that certainly is one of options available.

Anthony Paolone - JPMorgan

What is the collateral for the 20 million and then with respect to Concord, what's kind of first up to get your collateral out of that? Is it developer's personal guarantee or what it is there?

Greg Silvers

No, in both situations you have foreclosure actions, they are both supported, both Concord and those not are supported by collateral but you would pursue first Tony, and to David's point the problem and without going into too much detail as you can imagine is that if you can work out and negotiate a deal, you are going to as David says realize on our collateral or realize on a solution much faster than if you are going to be involved in contracted litigation to foreclose on an interest. It's very similar to what we saw in Toronto and since that a, we pursue negotiated settlements for experiencing where at all possible.

Anthony Paolone - JPMorgan

Okay. And during that process I don't recall the rate that you are accruing interest aspect, I assume that through this whole process even though it's not coming through your income statement you would still be due that money at some point in time.

David Brain

Yes that's still occurring, definitely we're just not recognizing for purpose income statement and FFO.

Mark Peterson

That's true for both the Concord note and the two other $20 million of notes.

Anthony Paolone - JPMorgan

And do you have any legal obligations to fund the rest of Concord?

David Brain

No it is our feeling that the agreement we're operating under the second phase of funding that project is defined is no longer happening in place and so we're in a negotiation position whether we fund anything more.

Anthony Paolone - JPMorgan

Okay. Then on Schlitterbahn can you talk a little bit about the revenue split, I think you mentioned in the press release and how that works?

Mark Peterson

Right. It's very similar Tony to what we do in theaters, that we have our participating revenue above its threshold amount. So if you look at with that number is such we would anticipate if the Kansas Park performs as its formula that we will see some participating rents in the first year.

Anthony Paolone - JPMorgan

And that performance has been under the reduced scope or the original plan?

Mark Peterson

Under this reduced scope.

Greg Silvers

Yeah, under the reduced scope. We think the threshold of the participating rent threshold is very achievable and therefore there is the potential, we would not include it any of it but we think its very achievable and there is the possibility for upside revision as that thing performs the level and we get into the percentage rents.

Anthony Paolone - JPMorgan

Is that investment become purely mortgages on the parks? Was there a Schlitterbahn corporate guarantee and personal guarantee there as well?

Greg Silvers

We have the parent entity on the parks now, I mean we have basically all of the parent entities assets saving apart, they are [canvassed] in part which is in a joint venture which is not allowed to be pledged.

Anthony Paolone - JPMorgan

Okay.

David Brain

But here are no other entities yet.

Anthony Paolone - JPMorgan

I see. And on Toronto Life Square I didn't catch you mentioned I think the amount of the first mortgage that was being refinanced, I didn't catch that.

David Brain

It's approximately 119 million Canadian.

Anthony Paolone - JPMorgan

That's what's outstanding now, but is there amount that those mortgage holders willing to refinance?

Mark Peterson

Tony, this is Mark. Our term sheets are for anywhere from $100 million to $120 million, so it could be all the way from really no money out to slight off little.

Greg Silvers

20, 000 Canadian pay down, so we have a couple of term sheets.

Anthony Paolone - JPMorgan

To the extent that thing is put out to bid and a buyer emerges beyond your basis do you have any intention of topping that bid or trying to stand or would you just take the money and move on?

Mark Peterson

Tony, we may have an opinion upon that, in fact we've been instructed kind of by the receiver to not make perfectly clear our intentions as that kind of may disrupt the marketing of the property.

David Brain

It is not a bad result.

Anthony Paolone - JPMorgan

okay. And what is the cash NOI on that? On the project right now.

Mark Peterson

About $15 million.

Anthony Paolone - JPMorgan

That's US dollars?

Mark Peterson

Canadian.

David Brain

Canadian.

Anthony Paolone - JPMorgan

Okay. And then just on Cosentino, what's your investment there?

Mark Peterson

About 20 million.

Greg Silvers

Yes, 20 million.

Anthony Paolone - JPMorgan

And what's the I guess earnings impact now, do you have expenses in the revenues or what's sort of the head?

Mark Peterson

Well, let see obviously we've removed the income on the lease and then we have budgeted some expenses of effectively owning the property.

Greg Silvers

Like a TRS and operating, it's going to be discontinued to operate under really our do external lease by contractor.

David Brain

It release about 450.000 of rent per quarter is roughly what we are recording before plus we have baked into our guidance expenses that will be ours now not that significant but there are expenses.

Anthony Paolone - JPMorgan

Okay. And then just last question, I think you have some movie color exposure and I think they have had some trouble lately are those rents current to those assets fund?

Mark Peterson

Yes, those assets, let me give you some background on that, Tony, so we can understand. You got to understand the issue movie co had exposure to a large financing that basically their credit facility that came due and as they had not paid that off that triggered a provision in our lease, though the lawsuits that you saw were actually our lawsuits to take back our properties. Subsequently they sold four properties, paid off their credit facility and have no outstanding debt and as a result we dismissed the lawsuits.

Mark Peterson

They were settled in current.

David Brain

Yes.

Anthony Paolone - JPMorgan

Okay and thanks a lot for the supplemental package, much appreciated.

David Brain

Okay, great.

Operator

Your next question will come from the line of Michael Bilerman. Please proceed.

Michael Bilerman - Citigroup

Yes, good morning. Greg Schwartz here is with me as well. Maybe just talking about Toronto Life Square, you are talking about the $15 million cash NOI, that is in place today?

David Brain

Correct.

Michael Bilerman - Citigroup

And what is that sort of based off in terms of where occupancies at, how much of the digital signage is leased versus. Go ahead.

David Brain

That is based upon kind of where occupancy is at today and the signage contracts that we have in place. So we are really looking at about 11.5 million of real estate and 3.5 million of signage.

Michael Bilerman - Citigroup

And I think you talked about potentially that coming back into guidance in the fourth quarter and so what is your assumption that is baked into your guidance in terms of the contribution?

David Brain

Effectively a quarter of that NOI, so a quarter of $15 million?

Michael Bilerman - Citigroup

There is no expectation?

David Brain

Yes, obviously less first mortgage interest.

Mark Peterson

Yes, less first mortgage service.

Michael Bilerman - Citigroup

Right, but there is no growth in NOI between now and the end of the year.

David Brain

We are just forecasting the conservative.

Mark Peterson

Yes, we are giving a flat, although the reason of the expectation is that that particularly the advertising signage revenue grows as it has a lot of capacity to do something.

Michael Bilerman - Citigroup

The $15 million today, what is a reasonable stabilized number for the project.

David Brain

I mean we think over the stabilized version is closer to a $20 million number.

Mark Peterson

Right.

Michael Bilerman - Citigroup

And we are all talking Canadian dollar?

Mark Peterson

Yes.

Michael Bilerman - Citigroup

Okay and then maybe going back to Cappelli, the $20 million is effectively the stellar finance that you had in White Plains, correct?

David Brain

No.

Mark Peterson

No.

David Brain

There are three notes with Cappelli. The ones that we are talking about they are actually due in payable this quarter. One was secured by his interest in New Roc along with the personal guarantee. The other one was secured by his personal guarantee and we had various options on certain projects. The third one, the White Plains note was not due. This quarter is not due till 2017 and that one is secured by his White Plains interest in addition to his personal guarantee.

Michael Bilerman - Citigroup

And another borrower.

Mark Peterson

And another borrower is personal.

Michael Bilerman - Citigroup

And that note is current?

David Brain

Yes.

Michael Bilerman - Citigroup

And that note is how much?

David Brain

Each of three notes are 10 million each.

Michael Bilerman - Citigroup

Each are 10 million each? The loan is coming due on White Plains is subject to some NOI targets. This is for the 2010 maturity, the 114 million? I mean where are you today, would you able to extend that loan under the current NOI?

Mark Peterson

At this point I think with the lease outstanding, technically we will meet the hurdles, though we have been in discussion with the lenders and it is our expectations that note can be extended based on this current operating performance.

Michael Bilerman - Citigroup

It can?

David Brain

Can, yes.

Mark Peterson

Yes.

David Brain

Affirmatively can be extended based on this current operating performance.

Mark Peterson

Correct.

Michael Bilerman - Citigroup

I think Greg has a question as well.

Greg Schwartz - Citigroup

And just clarifying on the tenant weakness and the $0.14 that you had in guidance from the last quarter, is that over and above the $0.04 on filings this quarter?

Mark Peterson

Yes, the $0.04 was not anticipated in that guidance, that is correct.

Greg Schwartz - Citigroup

Again and just on the extension, on the renewal of the line and how far discussions at the moment, have any of the 235 million being committed from the lead vendors already?

David Brain

No, not formally committed, but we have had discussions and we have a good idea of what the commitments will be, but they are not technically committed at this point.

Greg Schwartz - Citigroup

Okay. Thank you.

Operator

And your next question will come from the line of Paul Adornato. Please proceed.

Paul Adornato - BMO Capital Markets

Hi, thanks. First of all, with respect to Toronto Life Square, you said from an accounting perspective, equity ownership would not be a bad thing. I was wondering if you could talk about it from a strategic perspective as well? Are there any enhancements or ways to create value that you as an equity owner will be able to bring to that property?

Greg Silvers

Well we do think, Paul, that A, we have got a premier asset and as David alluded to earlier this signage revenue that we are planning for this year is significantly lower than where we think the potential of that signage revenue is.

And so there is clearly opportunity we think to grow that business. We have a premier theater asset in the downtown area. We know we like the asset and we do think there is significant upside in the signage potential.

Paul Adornato - BMO Capital Markets

And from a customer perspective, is the property properly managed, is the customer experience adequate?

Greg Silvers

It appears to be so in the sense that it doesn't appear to be, the drivers of this was the refinancing, not necessarily operations. They don't have any known tenant issues. Everything seems to be fine. As we reported last year, I think our last earnings call though, the Future Shop that operates, there is the number one Future Shop in the province of Toronto, it's in Ontario, I apologize. We have the Adidas flagship store for the entire province, so everything seems to be performing well.

Paul Adornato - BMO Capital Markets

Okay and with respect to the retail vacancies, first of all on Filene's Basement, just to be clear this is a Filene's Basement that is scheduled to close. Is that right?

Greg Silvers

No, if you remember we talked about Filene's in our last call that they had vacated their space. We had filed suite against them and have a substantial claim for their vacating up the space. They had reached the reason we did not take this and Mark can elaborate more on this, they had entered into negotiations with us to settle that claim and then subsequently conversations were dead and they filed for bankruptcy.

Mark Peterson

Just to add to that our claim was something close to 8 million because of extended freed up the remainder of their release because they left early. The receivable that we left on the books at the end of the year was 1.5 million and as Greg mentioned they had entered into discussions with us. We felt good that we are going to collect the 1.5 million at least. We actually thought and may possibly could be upside. What changed things was the bankruptcy literally two days ago that was announced bad debt.

David Brain

We're still pursuing a client, but for now we're going to write it off.

Greg Silvers

The other thing I want to point out is Filene's otherwise has no income in 2009. This was something that was from 2008 that we thought was collectible that's we now reserved.

Paul Adornato - BMO Capital Markets

Could you talk about the leasing prospects for that space as well as the other vacant retail?

David Brain

We have LOIs that were negotiating on both of those spaces and fillings, I think what we said Paul last time is anymore where we used to talk with confidence about LOIs. We don't anymore till their actually signed deals, because anyway it just seems to be deals are constantly moving. We talked about in our last call about our two Bennigan's. We have entered into at least for one of those, we've got another one that we're finalizing the lease on, so we'll have both of those back online.

As I said earlier, our overall occupancy has remained relatively stable throughout all of this disruption, I think mainly due to the success in the primary driver of the theater anchored elements of all of our centers, but it's far more predominant in our other centers than it is in White Plains.

Paul Adornato - BMO Capital Markets

On the LOIs, how fresh are they? Have they been outstanding for a while?

David Brain

In one of them we're swapping leases, right now. Until it gets done, we just don't consider it done.

Paul Adornato - BMO Capital Markets

Finally with respect to kind of overall operations, you guys now have quite a number of "live situations" and I was wondering how the current management team is able to handle all the active situations that they have to be involved in?

Greg Silvers

I think, Paul if you notice, we had an announcement that we filled an 8-K in April, talking about the addition of Jerry Earnest II, our team. Jerry come to us with an extensive background from the mortgage industry, he was with Capmark, before that, what was GMAC. So, as we are working through some of these issues and they predominantly relate to our mortgage positions, we felt an importance to add to that. Jerry was a board member of our, so he is familiar with the company, he is familiar with the assets, familiar with the transactions and he brings a wealth of experience of these negotiated settlements and working through these issues. So we have in fact supplemented that benchmark.

Mark Peterson

Just as you say, we have more live situations, we've been added to the capacity to handle more live situations with as Greg indicate somebody that's depth of experience and also hits the ground running full knowledge of the company and it's all that's investments.

Paul Adornato - BMO Capital Markets

Okay. Thank you.

Operator

Your next question will come from the line of [Jay Hatfield]. Please proceed.

Unidentified Analyst

Good morning. With regard to the Schlitterbahn note, does that potential upside kick in as early as this summer?

Greg Silvers

Yes. It does.

Unidentified Analyst

I know I have one conversation but I didn't quite catch, what is the potential upside should we think about that potentially equity like returns or just a little above the 7?

Greg Silvers

I think the goal is to get our return back to the 10% number that the original deal was structured in. I'd be totally candid with you and I don't think we will achieve that in the first year, but what we talk about is in a conjunction with this participating feature and as we alluded in our press release, the ability to get pay downs for certain land parcels that we hope to sell off. We think, we can migrate that project back to that 10% cash-on-cash return that we originally structured the project.

Mark Peterson

As a base return of seven and upside to potentially 10, it's got to 40% to 50%, so as Greg, said we don't have to expect that to achieve all of it's upside in the first year, but at the same time that is the structured potential.

Greg Silvers

I think it's important to note that we are building at about 40 acres and we've got over 360 acres, so there is lot of land there that has capacity to be sold. But we wish to pass down.

David Brain

We have indicated in the press release that we have entered or the developer has entered into and option on a 60 acres parcel that was submitted as a potential casino parcel for the casino award in Wyandotte County Kansas which would result in a substantial pay down to our outstanding obligations.

Unidentified Analyst

So, you actually don't just participate in the upside of three water parks also with regard to anything else built on the vacant land?

Greg Silvers

Correct. And to the extent that it pays us down and we can move our expected returns closer to the original 10% number that we had structured the dealer.

Unidentified Analyst

Okay. And then you had mentioned potentially making some opportunistic acquisitions, but sellers are holding out for lower caps, your own preferreds have actually lagged, both the rally and the comment and also the credit market, would you consider repurchasing any of the, actually particularly the convertible preferred seem to for some reason trade worse than the straight preferred then being traded by different pockets of investors but would you consider a repurchase?

Greg Silvers

If you think what we will do, when we get back to the point that we have capital that's available to us that we will look at all of those investments options whether they be new theatres, existing theaters as you say convert and I think you just make decision on what you think is the best investment for that new capital.

Mark Peterson

I also think most of activity you are seeing with converts is convertible debt and a deleveraging process or a basically buying back in the convertible debt and showing a gain. This is convertible preferred, so we consider equity, there is no maturity or bullet out there and also I think secondly liquidity is king as I mentioned in my comments, and so to go the other way and actually buyback convertible preferred is colored to retaining our liquidity, so those are the two things, but as Greg mentioned, we will look at that, we continue to look at that and have been approached on that.

Unidentified Analyst

Well certainly relative to making an acquisition, you would have to get the preferred you are trading and put the Cap rates of 15%, there will be challenging to make a real estate acquisition, there will be…

Mark Peterson

You are in that mood.

Greg Silvers

We look at those things as you do.

David Brain

Paul, this is David, it's a combination of guarding carefully, liquidity as Mark and Greg indicated, we've also had thoughts and conversations with different capital market players, about that, then we traded, there are hard to combined. I don't think its certainly a something more where at this point nothing where we have any plans to tell you about.

Unidentified Analyst

And would you consider selling assets, just given at this location.

David Brain

Always.

Unidentified Analyst

I think that the convert preferred's actually trade pretty actively. Instead of going and bidding there would be liquidity there?

David Brain

Right.

Unidentified Analyst

Okay great. Thank you very much.

Mark Peterson

Thank you.

Unidentified Analyst

Okay, bye.

Operator

And your next question will come from the line of (inaudible). Please proceed.

Unidentified Analyst

All of my questions have been answered. Thank you.

David Brain

Thank you.

Operator

And your next question will come from the line of [Erik Lee]. Please proceed.

Unidentified Analyst

Hi, this is actually [Ambika Goel], can you provide some color on your 2010 debt maturity, specifically the White Plains assets, where are you relative to the NOI threshold in order to extend that loan and does that accounts for the filling to bankruptcy?

Greg Silvers

I think Ambika, the most definitive statement that we make is we have executed a term sheet for that extension.

Mark Peterson

As I said we expected with its current prospects to be extendable and were as Greg indicated we are working over with that with the lender right now.

Unidentified Analyst

And both of the mortgages that are rolling in 2010, others non-recourse or is that we put it back to the company?

Mark Peterson

No, the White Plains loan is not recourse the $56 million loan related to Concord is resource.

Unidentified Analyst

Okay. And then turning to the wine business, can you give some color on the asset that you are releasing or trying to sell, just more color on what exactly occurred?

Greg Silvers

Like I said without getting into personal as Ambika, there was a management change that we thought was taking the property in the wrong direction and therefore thought in the best interest of the asset, and in our interest we should take those properties back and find a new tenant or sell those properties. So it it's pre-wineries of vineyards and some tasting rooms associated with those wineries it's in predominantly the vineyards area Napa. We just think for the long-term value that was the right thing to do.

Unidentified Analyst

And what's so specific, which vineyard is this again?

Greg Silvers

This is a Cosentino.

David Brain

Cosentino vineyard.

Unidentified Analyst

And so the acquisition value of that was how much?

Mark Peterson

Approximately $20 million.

Unidentified Analyst

Are there any contingencies is on the line facility related to taking back that asset and having to release it is there anything that we should be keeping an eye on?

Greg Silvers

One was not financed.

Mark Peterson

There is no debt on it.

Greg Silvers

So, it has no debt on it.

Unidentified Analyst

Okay. Great. And then turning to Schlitterbahn, are you receiving percentage rents from your other parks or just from the development project?

Greg Silvers

It's all three, it's a cumulative. We talked about 15 billion '09 number.

Mark Peterson

17 on an annual rate.

Greg Silvers

Run rate number.

David Brain

Frankly, it's somewhat speculation on the $20 million to $25 million. It's just a matter of what you think that signage will go for and the occupancy, so that is an estimate in either case.

Greg Silvers

We probably have tempered our estimates there a little bit, but it does have beyond even $20 million that we're indicating here this morning probably does have potential backup towards the 25 million which is our gross if you want to be about those assumptions.

Unidentified Analyst

Okay. Great. Thank you.

David Brain

All right. Thank you, Ambika.

Operator

And your next question will come from the line of Bob (inaudible). Please proceed.

Unidentified Analyst

Thank you and first thanks for the increased disclosure. I think it's really important and helpful. And the Schlitterbahn transaction, congratulations on that. I think that’s taking a bad situation and really improving upon it. So good job with that.

Questions on the Toronto, just to not to beat a dead horse, is this project coming significantly over budget or what was the original pro forma NOI because it just seems incomprehensive bulwark. If 20 or 25 was the original pro forma NOI for this project and a 330 cost that you would have gotten into a second position on it, just doesn’t seem like there's enough return to have taken that risk.

Greg Silvers

Well I think part of it is a function of kind of the premier asset. You'll recall we entered into a purchase and sell agreement for this asset at $325 million in August of last year. So, there is a lot of perceived value as David indicated in the signage that the expectation level when the signage and the economy is responding to more advertising that we think that in '08, that number will be closer to $25 million and at the time we had several offers who believed in that and the property was significantly ahead of our position and the construction loan position was.

Unidentified Analyst

Several offer at what time?

Greg Silvers

In August of last year.

Unidentified Analyst

Okay, at a very frothy part of market, but when you originally underwrote the deal, $25 million on 330 is what a 7.6? And so, what was the interest in doing that? Whether it's premier or not, were you speculating that there would be a lowered interest, cap rate compressions that you might be able to get out or, what?

Greg Silvers

If you understand the structure of the deal, the way it was originally entered into, is we could buy the assets. We can buy 50% of the asset at a stated cap rate. That cap rate at the time was 9%, though we could buy our 50% of the assets, we have got a 9% cash-on-cash return for our 50% interest and we would have been repaid back, anything beyond that.

David Brain

We would get our balance of our money back and that would occur through a refinancing of the first, which was very reasonably expected, given the time we entered into the deal.

Plus we are not the developer, we are the lenders. So we are looking at it the first and second and in more from what can that support and as Greg mentioned combined with the option at 9%, we were comfortable with our position.

Unidentified Analyst

Okay, fair enough, well. We can disagree. But one last thing, David, you started off the call talking about how you told the Street that your numbers were going to be X and so this big decrease or miss on a headline basis was the Street's fault. From an investor standpoint, I would say that the company really should do a better job of guiding the Streets stronger. The numbers are out there, they don’t change, you should help move them down.

David Brain

All right, well, there is just a fine line between and you are not supposed to be guiding people around, but we are trying to be informative. I hear you and the time a

lot of these things change literally week-to-week as to what approximately the resolution and whether we have recognition of income. So I tried in the last call to communicate this out there. We clearly then popped down our dividend and that was the Q, essentially as I indicated for this revision.

But I hear you. It is a different time in terms of particularly these assets in particular of their level of predictability particularly quarter-to-quarter, month-to-month.

Greg Silvers

To add on the Concord project and later this month, there is still discussions ongoing about potential payment.

David Brain

Yes, just within week, so.

Greg Silvers

It's a ongoing process and if there was uncertainty whether that was going to be recognized in the quarter or not, we decided to be conservative to go with this cash basis as required by our policy, but that was one of the other things that played into it.

Unidentified Analyst

Okay.

Greg Silvers

We could argue whether the accounting was aggressive or conservative to begin with many event.

Unidentified Analyst

Let's move forward. Hopefully, you can have successes like improving the Schlitterbahn and we won’t have to have another call of rationalization and apologies.

David Brain

Right.

Operator

And your next question will come from the line of Jordan Sadler. It's a follow-up question.

Jordan Sadler - KeyBanc Capital Markets

Sorry, just quickly on the retail portfolio. I think Greg, you went through and historical occupancy is around 95% and if you exclude the big-box stuff that's vacant now. It's still there, any additional watch list tenants, anything we should anticipate, anybody non-current, I know you have quite a few restaurants in there and some other, more dicey looking tenants that may be smaller.

David Brain

Right now, we don't have anybody out there. We just had as an example, we just had an outback in Canada vacate but we've already signed the lease for the new tenant there. So, other than natural turn as we see things, no, Jordan, we don't have like a watch list of key tenants that were watching and if you look at our overall perspective, we don't have exposure. When you look at the Circuit City, that was our only Circuit City. We don't have that kind of concentration of retail tenant exposure across our platform.

Jordan Sadler - KeyBanc Capital Markets

My last question is just on the term loan related to the Concord that expires and matures September on next year, any additional talks there given what happened with that project?

Greg Silvers

Yes, there are discussions with that lender about extending their as well.

Jordan Sadler - KeyBanc Capital Markets

Has the change in the plan at the Concord then an event of default there or.

Greg Silvers

No, it is not.

Jordan Sadler - KeyBanc Capital Markets

Okay. Thank you.

Operator

Your next question is a follow-up question coming from the line of Anthony Paolone. Please proceed.

Anthony Paolone - JPMorgan

Thanks. I just wanted to confirm on the dividend policy, you reduced the dividend but, since you reduced the guidance came down more and historically you kind of run it on a payout basis. Do you feel comfortable with the current dividend?

Mark Peterson

Yes, I think the dividend is represents about our normal payout ratio of FFO given the range that we address to 340 to 360.

Anthony Paolone - JPMorgan

Okay, and then just one follow-up on Schlitterbahn. Do they have the ability to repay early?

Greg Silvers

Yes.

Anthony Paolone - JPMorgan

Would it be, just at par, just thinking if their parts would blow the doors off and suddenly you are earning a much rate of return, can they repay early and that you may actually recoup the originally underwritten return?

Mark Peterson

I told you that is a possibility, although, we are kind of looking at this as, this is not the project that we originally envisioned and therefore, paid back is not a bad answer.

Anthony Paolone - JPMorgan

Okay. Understood, appreciate it.

Operator

Your final question is a follow-up question coming from the line of Michael Bilerman. Please proceed.

Michael Bilerman - Citigroup

Just going back to (inaudible) where the 11.5 million for the retail. What sort of occupancy is baked into that?

Greg Silvers

Existing occupancy.

Michael Bilerman - Citigroup

Which is that? What level?

Greg Silvers

87%.

Mark Peterson

87 to 88%

Michael Bilerman - Citigroup

So if you were pro forma that out at 95, that 11.5 goes to where?

Greg Silvers

Probably 12.5, 13.

Michael Bilerman - Citigroup

So its all the upside is taking the signage, effectively from 3.5, up over.

Greg Silvers

That's too approaching 8 to 10.

Michael Bilerman - Citigroup

Then I just want to, you talked about last quarter being the 70 million run rate, and you talked previously without including this into your guidance in the fourth quarter. So, are we not going to get from $15 million today to a $17 million run rate by the end of the year?

Greg Silvers

It's not that Michael. Part of that is in some aspects of this year with some of the tenants, you have some pre-rent periods that would on a run rate basis be different than what you're going to actually receive this year.

Michael Bilerman - Citigroup

Your 15 in the cash, 17 was in place that sort of a cap or after pre rent.

Mark Peterson

Right.

Michael Bilerman - Citigroup

And just going back to Bob's question, because my understanding is this project did come out significantly above what initial cost was.

Mark Peterson

Right.

Michael Bilerman - Citigroup

What planned is a 330 project?

Mark Peterson

Right, it was originally a kind of a 275 project.

Michael Bilerman - Citigroup

And that’s the basis that you made your investment on?

Mark Peterson

That’s correct.

Michael Bilerman - Citigroup

And the NOI numbers didn’t change when you under-wrote it 275, effectively getting to the high end that you envisioned a $25 million number, at 275 a non-cap would get you that now?

Mark Peterson

That’s correct.

Michael Bilerman - Citigroup

Okay. I just one on Schlitterbahn, I don’t believe there is any mention on the previously disclosed $25 to $30 million equity injection from the family and where does it stand?

Mark Peterson

That’s been done as a necessary port to open the park up. The family is also to preserve and make sure that the star bonds are going to be available on an ongoing basis. We need to break the star bonds escrow and they are going to buy star bonds as a way of interjecting additional capital into the project and that should happen in the next 30 to 60 days.

Michael Bilerman - Citigroup

And just going back to the loans on Concord and Toronto Life Square all that’s been accrued interest, you didn’t feel anything necessary to why your not looking any cash income to remove the accrued portion on Concord and Toronto Life Square?

Greg Silvers

No, in both cases, management estimated the value considering these appraisals that were done which were well in excess of the carrying value that include accrued interest. So, we’ve have seized accruing interest on both those projects, so the balance won't grow, because we'll receive the cash when it comes, so they won't grow and then current appraisal as I said is higher than the carrying value that includes the to-date interest.

Michael Bilerman - Citigroup

Right and then just finally the supplemental is extraordinary helpful, so I appreciate you putting that out there, I said one question, as you look at your investment dollar page, page 7. If we look at the retail theatres, I guess the 104 is your Toronto Life Square, is it correct? Mortgage notes and related receivable. On page 7.

Mark Peterson

Okay. Page 7. I am on page 7. Sorry I was on different page.

Michael Bilerman - Citigroup

That mortgage notes and related receivable in retail theatres is that 104 for Toronto Life Square?

Mark Peterson

Yes.

Michael Bilerman - Citigroup

And then the accounts and notes receivable that's where your effective, the Cappelli loans are sitting?

Mark Peterson

Yes. Some of accounts receivable right.

Michael Bilerman - Citigroup

Would normal account receivable but is $30 million of notes are embedded into that number?

Mark Peterson

Right.

Michael Bilerman - Citigroup

Okay. And then if you are to break up this 1.9 billion between theatres and retails, what would that split be?

Mark Peterson

I think that slide that David showed, can you pull that back up.

Michael Bilerman - Citigroup

Is the slide show available as a download other than just clicking on the link, if its not then you can make that available prior to calls.

Mark Peterson

50% is little over of total asset. But little over 50% is theater.

Greg Silvers

52.

Mark Peterson

Well under 20% is other retail.

Greg Silvers

Theatre located retail

Mark Peterson

And to your point Michael, it will be available after our call probably the few hours on our website.

Michael Bilerman - Citigroup

Okay. It is just helpful because it hard to follow you. If you make it available as a PDF just when the call starts, that way we can follow along and print it, it will be easier, so 80% of that 1.9 billion is direct theater?

David Brain

When I comment on, I’m talking about overall assets. So I am not talking really off the base of $2.7 billion, of that number 50 plus percent is theaters and about, a little under 20% is non-theater retail. That’s the little difference in taking 20% of that number, it's 20% of that total gross assets.

Greg Silvers

Effectively 540 of the 1.9.

David Brain

Yes, that's 20%.

Michael Bilerman - Citigroup

It seems a little bit high. Okay, all right. Thank you.

Operator

And there are no further questions at this time.

David Brain

Well I appreciate, everybody tuning in, the chance to talk to you and of course we’re always available further. If you would like to give us a call if you think something more, we look forward to.

As I said in closing my comments, improved results, we are getting some things cleared up. We expect to improve on that further and we look forward to join you next quarter. Thank you.

Greg Silvers

Thank you

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: Entertainment Properties Trust Q1 2009 Earnings Call Transcript
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