EPR Properties (EPR) Q3 2020 Earnings Call Transcript

EPR Properties (EPR -0.10%)
Q3 2020 Earnings Call
Nov 05, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 EPR Properties earnings call. [Operator instructions] 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. Thank you.

Please go ahead.

Brian Moriarty -- Vice President, Corporate Communications

Hi, thanks, everybody, and thanks for joining us today on our third-quarter 2020 earnings call. I'll start the call by informing you that this call may include forward-looking statements as identified in the Private Securities Litigation Act of 1995, identified by such words as will be, instead, continue, may, believe, expect, hope, anticipate or other comparable terms. The company's actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of these 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 are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along today -- with 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 company president and CEO, Greg Silvers.

Greg Silvers -- President and Chief Executive Officer

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's third-quarter call. I'd like to start by continuing to offer our best wishes for the health and safety of everyone as we face the challenges of the ongoing pandemic. Joining me on the call today are Company CIO Greg Zimmerman; and Company CFO Mark Peterson.

I will start the call with an opening statement and then turn the call over to Greg and Mark, who will provide more detail. In this uniquely difficult environment, we have focused on the areas where we have control and allow us to successfully navigate the impacts of the pandemic. With this backdrop, I'd like to start today's call by highlighting our near-term priorities. Number one, people in process.

During this period, there can be no greater priority than the health and well-being of our workforce. In response to the pandemic, we, like many, initiated a remote work environment to help mitigate employee risk. Additionally, we have put in place sound processes and technology to ensure employee engagement as our people work remotely. I'm extremely proud of the adaptability and dedication demonstrated by our organization.

Number two, ensuring strong liquidity. Our top business objective since the onset of the pandemic has been ensuring the necessary liquidity to get to the other side. We may have near-term tenant disruption, however, the businesses that our properties support are not going away. The institutional quality of our properties gives us confidence in their resilience.

The key to weathering the storm is financial stability and our liquidity gives us that stability. Number three, stabilization and ramping up of our tenant businesses. Non-theater tenants continue to navigate the pandemic with solid performance as consumers get more comfortable with safety protocols, yet our tenants -- our theater tenants remain challenged by the lack of content. The positive news is that when consistent content is available, the consumer has returned.

As evidence of this, China's box office has approached 2019 levels for August and September, supported with only local content. Number four, our return to growth. The goal of EPR is to acquire experiential properties that generate consistent cash flows which translate into dividends for our shareholders. With an experiential focus that is anchored to communal activities, we have been in the crosshairs of this pandemic.

However, this pandemic will end and consumers will return to the activities that our properties support. As this normalcy returns, EPR will likewise get back to normal. What does normal mean? It means we return to growing our portfolio and paying dividends to shareholders as we have done successfully for over 20 years. Now turning to the third-quarter results.

We continue to show steady improvement in our cash collections as over 90% of our non-theater properties are open. Our theater portfolio is challenged by a variety of factors making it difficult to regain momentum. Our theater property openings have been inconsistent and incomplete due to state and local mandates, and new content has been extremely limited. While the current operating environment remains challenging for our theater properties, we do not see evidence of permanent structural change -- viable alternative for blockbuster titles as it can't drive the volume required to replace theater exhibition, even with a captive audience.

Additionally, research shows that when consumers are aware of the significant precautions that operators are taking, 82% say they would feel very or somewhat safe going back to the theaters. With attendance surpassing 1.2 billion in 2019, we are confident that the theater exhibition industry will return as the dominant out-of-home entertainment experience. Lastly, with our focus on controlling what we can to get to the other side of this pandemic, we extended our debt covenant waivers on our bank credit facilities to the end of 2021. While this places restrictions on our use of capital, this extension is important as it recognizes the significantly dislocated environment we are in and provides additional flexibility through the end of 2021.

Now I'll turn the call over to Greg Zimmerman for a more deep look at our portfolio.

Greg Zimmerman -- Chief Investment Officer

Thanks, Greg. At the end of the first quarter, our total investments were approximately $6.7 billion, with 369 properties in service and 96.7% occupied. During the quarter, our investment spending was $8.7 million and was entirely in our experiential portfolio, comprising build-to-suit development and redevelopment projects that were committed prior to the COVID-19 pandemic. Our experiential portfolio comprises 284 properties with 44 operators, is 96.4% occupied, and accounts for nearly $6 billion of our $6.7 billion in total investments.

We have three properties under development. Our education portfolio comprises 85 properties with 15 operators and at the end of the quarter was 100% occupied. I now want to update you on the operating status of our tenants, our deferral agreements, and rent payment timelines. 63% of our theaters were open as of November 3rd.

Openings continue with restrictions implemented by state and local governments. As of today, only New Mexico prohibits all theaters from opening. However, many states, most significantly New York and California, have county by county restrictions which preclude some theater openings. In early October, Cineworld announced that it would close all of its U.S., U.K., and Ireland theaters because of the lack of tent-pole films from Hollywood.

After that announcement, Regal opened several theaters in New York and opted to leave some theaters in California open. As of today, two of our 57 Regal theaters are open. The exhibition business faces significant headwinds because of a lack of product. This lack of product and resulting lack of demand and customers, makes it impossible to prove they can safely operate and can draw sufficient customers back to support the release of major motion pictures.

Because of this dearth of product, we expect the remainder of 2020 will be slow. The current 2020 major film slate, which is subject to change, includes The Croods at Thanksgiving and Death on the Nile with Kenneth Branagh and Wonder Woman 1984 at Christmas. We believe Warner Bros' decision, whether to move forward with Wonder Woman 1984 will, in large part, be based on New York City's reopening schedule and developments in Europe. The 2021 film slate was strong before the pandemic.

Because most films scheduled for 2020 have pushed to 2021, we are optimistic that the projected film slate will provide a strong content platform for theaters to ramp up. This 2021 slate includes A Quiet Place Part 2, Black Widow, No Time to Die, Doom, Top Gun Maverick, The Fast and The Furious 9, Spider-Man 3, Ghostbusters Afterlife, Jungle Cruise, Jurassic World Dominion, and MI7. We don't see evidence of structural changes in theater-going habits from the COVID-19 pandemic. Recent PVOD releases have had limited success even without an in-person alternative.

The moviegoing habit bounced back quickly in China and Chinese box office is performing well with strong customer demand for local releases, and despite almost no revenue for the first half of the year, a lack of Hollywood releases and capacity restrictions. As demonstrated by the recovery of our experiential tenants, which I'll discuss in a minute, customers want to engage in entertaining affordable experiences. Once they know the operator is open and become comfortable with new protocols, word-of-mouth spreads and they're returning to experiential assets. We are confident the same will hold true for theaters.

As we have said throughout the COVID-19 pandemic, the studio's decision to push virtually every major title to theatrical release in 2021 and 2022 is the best evidence of their commitment to the economic model supplied by the exhibition industry. Tent-pole films cost well over $100 million to produce, so the studios need theatrical release to make money. Simply put, consumers still prefer to see movies on a big screen and don't embrace PVOD as a viable value alternative. Theatrical exhibition remains the preferred medium for consumers and the best format to deliver returns for major releases.

I want to spend a minute updating you on our other major customer groups. Approximately 93% of our non-theater operators are open or for seasonal businesses are closed in the normal course. These businesses continue to implement appropriate safety protocols to comply with state and local requirements. Performance remains fluid, depending on the impact of COVID-19 in each locale.

At a high level, performance has generally exceeded our operators' expectations in the face of a lengthy pandemic, which has created an ever-changing, hugely challenging environment. Our strategy of owning drive-to value-oriented destinations is holding strong and our operators are resilient. We have not seen any meaningful impact to our portfolio from reduced airline travel. All of our Topgolf locations, all of our Andretti Karting locations, and all of our family entertainment centers are open, all of our U.S.

gyms are open. About 61% of our attractions had opened for normal operations prior to seasonal shutdowns. As we have indicated in past calls, a few of our attractions missed all or part of the season due to governmental health and sanitation measures and the financial feasibility of operating with reduced occupancy in a truncated season. Except for The Kartrite Hotel and Indoor Water Park, all of our experiential lodging assets are open.

Kartrite remains subject to New York State's phased reopening plans and given that we missed the entire summer season, we are planning for our Kartrite reopening in spring 2021. Resorts World Catskills is open. Finally, we believe all of our ski resorts will open on time. Turning to our education portfolio.

Substantially all of our early childhood education centers remain open. Our operators ramp up varies by location and is, as you would expect, a function of applicable state and local capacity restrictions, the emergence or continuance of hotspots throughout the country and parents return to work timetables. Substantially, all of our private schools remain open, utilizing in-person, online and hybrid instruction models. Varying state and local requirements have influenced each school's instruction model for the fall semester.

Generally, parents have continued to see the value of private school instruction, which has been constructive for school enrollment. As we approach year end, we'll have more clarity on our operators' plans for spring 2021 in-person, online or hybrid instruction. I want to take a moment to update you on the status of our cash collections and deferral agreements. Cash collections have improved in conjunction with reopenings.

Tenants and borrowers paid approximately 35%, 40% and 48% for July, August, and September, respectively, and 41% for the third quarter versus 24% for the second quarter. Cash collections for October were 43% and were negatively impacted by Regal's decision to close most of our theaters and because many of our exhibitors are paying a percentage of sales, the lack of product from Hollywood. As Mark will go over, we expect fourth-quarter cash collections to exceed third-quarter collections. Due to these significant challenges and uncertainty caused by the COVID-19 pandemic, at the end of the third quarter, we determined it was appropriate to move Regal and one other attraction tenant to cash-basis accounting.

As we've discussed our exhibition partners continue to face serious headwinds. The lack of product and reopening restrictions have weighed heavily on current and projected box office performance. As a result, although we had completed appropriate deferral agreements with substantially all of our exhibition customers, we continue to work on additional modifications to some of those deferral agreements. As we noted last quarter, our goal has been to work diligently with our customers to structure appropriate deferral and repayment agreements to facilitate their ability to reopen efficiently and help ensure their long-term health while also protecting our position and our rights as landlord.

We want to help them through a period where they have significantly reduced or no cash flow ramping back to a more stabilized cash flow. We've individually tailored each deal, taking into account the variables impacting each business and improved our position through various arrangements. As we enter the fourth quarter, we anticipate our permanent rent reductions will total approximately 5% to 7% of annualized pre-COVID contractual cash rent. However, because of the continuing challenges facing theatrical exhibition, depending on the length of time it takes to bounce back, additional permanent rent reductions may be required.

Nineteen of our top 20 customers are either paying their pre-COVID-19 contractual rent or interest or have executed deferral agreements. We have made significant progress with the one remaining operator. Between executed agreements and those customers for whom no agreement was required, we have addressed approximately 90% of our annualized pre-COVID contractual cash rent and interest payments. Our agreements are generally structured to ramp up rent and mortgage payments through the end of 2020, and in some cases, beyond 2020.

Repayment of deferred amounts typically commences in 2021. Depending on the deferred amount and to allow our customers some breathing room, the deferral repayment period generally extends beyond 2021. The vast majority of our arrangements provide for repayment of all deferred rent. In a few cases, we have provided rent concessions, but we've received equal or greater value through additional lease term, additional collateral or other benefits.

In virtually every case, our customers have paid and continue to pay third-party expenses, including ground rent, taxes, and insurance. Mark will provide additional color on the revenue recognition and cash collections implications for the remainder of the year. I now turn it over to him for a discussion of the financials.

Mark Peterson -- Chief Financial Officer

Thank you, Greg. Today, I will discuss our financial performance for the quarter, which was significantly impacted by the continuing disruption caused by COVID-19, provide an update on our balance sheet and strong liquidity position, and close with some estimated forward information. FFO as adjusted for the quarter was a loss of $0.16 per share versus $1.46 in the prior year and AFFO for the quarter was $0.04 per share compared to $1.44 in the prior year. As Greg mentioned, at the end of the third quarter, we determined it was appropriate to move Regal and one attraction tenant to cash-basis accounting due to the collection of their receivables not being deemed probable, which is a high threshold under the new lease standard at 75% probable of collecting 90%.

As a result, we wrote off receivables totaling $49.8 million at September 30th related to these tenants, including $33.4 million from prior periods. FFOs adjusted for the third quarter of 2020 includes the full impact of these write-offs while AFFO, includes all but the straight-line portion, totaling $23.9 million. Note that receivables written off are still owed by these tenants and we booked as revenue in the future if and when received. However, there will be no receivable risk on the balance sheet for these tenants going forward as a result of moving them to cash-basis accounting.

Also, please note that the operating results for the third quarter of 2019 included the public charter school portfolio, which was sold in the fourth quarter of last year and is included in discontinued operations. The prior-period results also included an $11.3 million termination fee. Total revenue from continuing operations for the quarter was $63.9 million versus $169.4 million in the prior year. This decrease was due to the write-offs of $49.8 million in receivables that I discussed, as well as, the accounting for the various agreements with customers as a result of the COVID-19 impact similar to what we discussed last quarter.

Additionally, as The Kartrite Resort and Indoor Water Park remains closed due to COVID-19 restrictions, we had lower other income and lower other expense of $11.3 million and $8.7 million, respectively. These negative impacts were partially offset by increases in revenue related to property acquisitions and developments over the past year. Finally, percentage rents for the quarter totaled $1.3 million versus $3 million in the prior year. Of this decrease, $1.3 million related to the closure of properties due to COVID-19 restrictions and the remaining decrease was due primarily to the early education facilities that were previously operated by CLA and paid percentage rent only in 2019.

Note that these properties are now leased to Creme de la Creme. I would like to point out that we are defining percentage rents here as amounts due above minimum rent and not payments in lieu of fixed rent based on a percentage of revenue. Therefore, AMC and other theater tenants that are currently making cash payments as a percentage of revenue against contractual rents are treated as minimum rent. General and administrative expense decreased by $1.6 million from the prior year to $10 million.

This decrease is due primarily to lower payroll and benefit costs, as well as, lower travel expense. Transaction costs were $2.8 million for the quarter compared to $6 million in the prior year. The decrease is related primarily to lower costs incurred related to the transfer of early education properties to Creme de la Creme. Interest expense increased by $5.1 million from prior year to $41.7 million.

This increase was primarily due to the precautionary measure we took in March to draw $750 million on our revolving credit facility, which provides us with additional liquidity during this uncertain time. As I will discuss later in my comments, we are also paying higher rates of interest on our bank credit facilities, as well as, our private placement notes during the covenant relief period. The next slide lays out our third-quarter results, reflecting the impact of the write-offs incurred due to our decision to move Regal and one attraction tenant to cash basis at the end of the third quarter. As you can see, these write-offs totaled $0.67 per share for the quarter.

And before these charges, our FFO as adjusted per share for the quarter was $0.51, which was ahead of our plan. During the quarter, we had other charges that were excluded from FFO as adjusted. We recognized a total of $11.6 million in impairment charges on two properties because of shortening our hold periods. Additionally, we recognized net credit loss expense of $5.7 million that primarily related to reserving the outstanding balance of one note receivable, totaling $5.9 million.

Lastly, we recognized $18.4 million in income tax expense that largely related to recognizing a full valuation allowance of $18 million on our -- on deferred tax assets related to our TRS and Canadian tax paying entity. All of these charges were a result of uncertainty caused by the COVID-19 pandemic. As discussed last quarter, we have classified our tenants and borrowers into five categories based on how we accounted for them in the context of our annualized pre-COVID contractual revenue level of $624 million, which consists of cash rent, including tenant reimbursements and interest payments. This annualized cash revenue excludes properties operated under our TRS structure.

The first category is for customers that have continued to pay as usual. The second category is for customers with payments deferred where we are currently recognizing such revenue. The third category is for customers with payments deferred where we are not currently recognizing such revenue. The fourth category is for customers on a cash basis or and/or tenant leases that have been or are expected to be restructured and the fifth category is for new vacancies.

Note that the only significant change in these categories from what was reported last quarter was moving Regal from the second category, which is full accrual basis, to the fourth category that includes customers on a cash basis. Now let's move to our balance sheet and capital markets activities. Our debt to gross assets was 42% on a book basis at September 30th. At quarter end, we had total offsetting debt of $3.9 billion, of which $3.1 billion is either fixed rate debt or debt that has been fixed through interest rate swaps with a blended coupon of approximately 4.5%.

Additionally, our weighted average debt maturity is approximately five years and we have no scheduled debt maturities until 2022 when only our revolving credit facility matures. Due to the continued -- continued pressure on near-term quarterly results as a result of the impact of COVID-19, on November 3rd we further amended our bank credit facilities to obtain an extension through the end of 2021 of the waivers of the same four covenants temporarily suspended in June. This amendment provides us additional time and flexibility to work with our customers during this period of uncertainty. Note that there was no change in the interest rate schedules from that agreed to previously.

We are currently negotiating similar covenant waiver extensions related to our private placement notes which we expect to close in Q4. We believe we have sufficient liquidity to see us through the market disruption caused by COVID-19. Our third-quarter cash outforce -- outflows from operations, which includes interest payments, less preferred dividends was approximately $4 million. With this minimal operating cash burn during the quarter and still nearly $1 billion of cash on hand at quarter end, we are well prepared to navigate through this challenging time.

As a result of the impact of the COVID-19 pandemic on our performance and the performance of our tenants and borrowers, our unsecured debt rating was downgraded by Moody's to BAA3 on August 21st. additionally, subsequent to quarter end, both S&P and Fitch downgraded our unsecured debt rating to BB+. These changes in our unsecured debt ratings resulted in increased interest rate spreads on the debt outstanding under our bank credit facilities, as well as, our private placement notes. Accordingly, as detailed on the bottom of the slide, based on current ratings, our revolving credit and term loan facilities are now at LIBOR plus 1.625% and LIBOR plus 2%, respectively, and the facility fee on the revolving credit facility is 0.375%.

And after the covenant relief period based on current ratings, the rates for the revolving credit and term loan will be LIBOR plus 1.2% and LIBOR plus 1.35%, respectively, and the facility fee will be 0.25%. Note that if Moody's were to further downgrade our unsecured debt rating, all in pricing on both of these facilities would increase by 35 basis points during the covenant relief period and 40 basis points after the covenant relief period from what is shown on this slide. Additionally, the rates on our $340 million of private placement notes are currently set at the maximum rates during the covenant relief period of 5.6% and 5.81% for the notes due in 2024 and 2026, respectively. After the covenant relief period, these notes are scheduled to return to the pre-waiver levels of 4.35% and 4.56%, respectively.

Lastly, due to the rating agency downgrades, during the covenant relief period, we are required to provide subsidiary guarantees for our bank credit facilities, private placement notes, and other outstanding senior unsecured notes. And if Moody's were to further downgrade our unsecured debt rating, we will be required to provide an equity pledge of certain subsidiaries during the covenant relief period to secure the obligations under our bank credit facilities and private placement notes. Finally, as previously announced due to the uncertainties of -- created by the COVID-19 disruption, we are not providing any forward earnings guidance. However, we would like to update you on the expected percentage ranges of our pre-COVID contractual cash revenue that we expect to recognize in our financial statements for the fourth-quarter and full-year 2020 of 53% to 63% and 67% to 70%, respectively.

Additionally, the expected percentage ranges we expect to collect of such pre-COVID contractual cash revenue in the same periods are 40% to 50% and 50% to 53%, respectively. Note that both the revenue recognition and cash collection ranges for fourth-quarter and full-year 2020 are lower than previously estimated, due primarily to lower estimates for theaters, including moving Regal to a cash basis of accounting and the impact of lower box office expectations for those theater operators paying a percentage of sales toward their contractual rent to allow them to ramp up. Now with that, I'll turn it back over to Greg for his closing remarks.

Greg Silvers -- President and Chief Executive Officer

Thank you, Mark. As we discussed today, progress is being made on multiple fronts. Cash collections are rising on a quarter-over-quarter basis and tenant performance outside of theaters continues to improve. While challenges remain, we are confident that the activities that our properties support will endure and we have the balance sheet and quality assets to weather this pandemic.

With that, why don't I open it up for questions?

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Nick Joseph with Citi. Your line is open.

Nick Joseph -- Citi -- Analyst

Your performance continues to improve and you gave a lot of good details. I'm wondering if you could provide kind of some numbers behind what you're seeing for open tenants, how performance has been kind of since opening maybe, either versus pre-COVID or from a rent coverage perspective, just to give an indication of how much has been recovered from kind of on-the-ground performance.

Greg Silvers -- President and Chief Executive Officer

Sure. I think that those trends are very positive. But why don't -- Greg Zimmerman, why don't you add some color to this on kind of what we're seeing?

Greg Zimmerman -- Chief Investment Officer

Sure. Hey, Nick. Good morning. Obviously, we're not -- we can't give tenant-by-tenant numbers, but I would tell you that a lot of our tenants are approaching 80% to 90% of pre-COVID numbers and some are actually outperforming.

The other thing that I think has been a benefit is operating metrics are getting a little better. They've had to seriously look at costs as they've gone through this process, and that's generally across attraction, eat and play and lodging.

Nick Joseph -- Citi -- Analyst

Great. Thanks. That's helpful. And then just on the theatrical releases, obviously, we've seen some delays as you said, kind of a chicken and the egg issue where if the theaters aren't open, they're not going to release the movies.

So kind of what breaks first? What ends this stalemate between releasing the movies, but also the theaters choosing to not be open until those movies are released?

Greg Silvers -- President and Chief Executive Officer

I think, as Greg pointed out, and I'll ask for his comments after, I think getting New York City and L.A. open, it'll be important. But I also don't think we can downplay the importance of a vaccine as far as kind of what people are thinking. If you look at this in terms of kind of major windows of when product is available, our next major kind of window will be kind of the holiday season and do those movies hold.

If not, then we're probably looking for tent-poles is the spring. I think that's kind of the time frame. But Greg, maybe you can add something to that?

Greg Zimmerman -- Chief Investment Officer

No, I agree. The other thing I would say, Nick, is it's dependent on a lot of things happening in Europe as well. As of last week, the U.K., France, Italy, and Germany put restrictions on theaters. They're presently, probably only going to last 30 days, but who knows if they'll roll.

And I think it's important to remember that between New York and L.A., it's well over 16% of box office, so the theater -- the studios are going to obviously look at that carefully. And then lastly, probably because of the deal that Universal has with AMC, we expect Croods will release over Thanksgiving.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Thanks. Good morning. Mark, thanks for the comments on your expectations around collections in the fourth quarter. Any updates? Or do you have a sense on how that translates into, whether you'd expect to be in a cash flow positive position in the fourth quarter or whether you might expect a shortfall?

Mark Peterson -- Chief Financial Officer

Yeah. We should -- at that midpoint of 45% cash collections relative to pre-COVID contractual cash revenue, we should be pretty close to breakeven. I think our breakeven is about 46% and so we're right around there is what we expect for fourth quarter. So should be pretty close to breakeven as far from a cash burn perspective.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. And then are you able to share how much of minimum rents was variable rent based on percentage of sales in the quarter?

Mark Peterson -- Chief Financial Officer

Well, of course, we had percentage rents that we're calling percentage rents, that was $3.1 million. And then there were other percentage rents that we're treating as minimum rents because they were really payments toward their minimum rent and I don't think we share that level of detail. It wasn't tremendous because a lot of that's based on box office and box office wasn't that great, obviously, in Q3.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. And then just on Regal, you know, has there been any formal agreement reached between you and Cineworld? Either a lease restructuring or a lease modification at this time? I understand the reclassification and transition that was made this quarter to cash basis, but are negotiations taking place or have they sort of just closed, I guess, 55 of the 57 theaters in the portfolio at this time and elected not to pay rent?

Greg Silvers -- President and Chief Executive Officer

No. I mean we've reached a deferral agreement with Regal. And so again, I think our approach to this, Todd, was really out of being conservative and abundance of caution. But we have -- we do have an in-place agreement with Regal for their deferral.

So if there had been an announcement regarding a restructuring, we would have made that, but this is currently a deferral agreement. And Greg, I don't know if you have anything more to add on to that?

Greg Zimmerman -- Chief Investment Officer

No, I don't think so. I think you covered it.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. And just lastly, I know it hasn't been that long since they reopened, but you mentioned that the two Cineworld or Regal theaters that opened in New York and California. I was just curious if you had any read or update on sales and traffic? And also, what content are they viewing there? Wondering if you could just speak about that, whether you'd expect any additional openings to take place that they might be contemplating.

Greg Silvers -- President and Chief Executive Officer

I don't think we think there'll be any additional openings and they're playing -- I mean there is some sporadic product that's coming out. I think they're still -- what's very interesting and Greg can comment on this is -- you know, when -- several weeks ago when Orange County opened up a few locations in California, it shot to the No. 1 kind of theaters in the country. So there -- when we see these openings, we see the consumer respond but without true flow of content, it's very hard.

And I think Cineworld's decision was based upon the fact -- and if you followed them, they said they could open within two weeks once there's a demonstrable kind of content flow. And so I think right now, we're just not seeing that but when they do open, they're performing very solidly. But Greg, maybe you have something more?

Greg Zimmerman -- Chief Investment Officer

No, I think that's right. And I think, you know, Todd, you're probably looking at 15%, and I'm not speaking specifically of Cineworld, I'm talking about all exhibitors. Traffic is probably 15% of last year, particularly, when you take into account that Tenet is the only tent-pole film that was released. As Greg mentioned, there are still releases, I mean a Liam Neeson movie released a couple of weeks ago.

They're just not major releases.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right. Great. Thank you.

Mark Peterson -- Chief Financial Officer

Hey, Todd, one other thing. I flipped my numbers on the percentage rents for this quarter was $1.3 million. It was prior quarter, $3.1 million. Again, by percentage rents there, I mean over base rent, so $1.3 million this quarter, $3.1 million prior-year quarter, just to clarify.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. All right. Thank you.

Operator

And your next question comes from the line of Anthony Paolone with J.P. Morgan. Your line is open.

Anthony Paolone -- J.P. Morgan -- Analyst

Yeah. Thanks and good morning. My first question is, I'm just trying to understand, so I think in the press release, you talked about working on additional deferrals with some of the theater tenants. But if you're running percentage rents, I guess, what is there really to do from here?

Greg Silvers -- President and Chief Executive Officer

Well, Tony, it really was when do they resume kind of beginning to pay cash rents again? And I think the early expectation was, when we cut some of these deals back in May, that we would be on more sure footing when you looked at what the release calendar was, we anticipated early on that we would begin to see more of a ramp-up in the fall. And so we're dealing with those sorts of issues of when do we -- when do we kick back into full paying rent and when do we start repaying some of the deferrals?

Anthony Paolone -- J.P. Morgan -- Analyst

OK. And then is -- can you give us what the collections are in the portfolio, excluding the theaters?

Greg Silvers -- President and Chief Executive Officer

Mark, I don't know if we have those numbers, excluding theaters?

Mark Peterson -- Chief Financial Officer

I mean I have those numbers, I don't have them handy. I'd say, you know, the lion's share is non-theaters, but we are collecting -- still collecting theater rents, both as a percentage of sales and in some cases, as a percent of fixed rent.

Anthony Paolone -- J.P. Morgan -- Analyst

Yeah. I'm just trying to understand like outside of theaters, like where is the next -- like what's the soft spot on theaters that you're seeing?

Greg Silvers -- President and Chief Executive Officer

Again, I think it's pretty strong. I mean if you start to look at -- as we've said, theaters are soft and then you begin to say 55% of our portfolio is non-theaters, and we're at kind of mid-40-ish percent. The real strength, candidly right now, Tony, is our non-theater portfolio.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. And then in something like early childhood education, where there's probably reduced capacity, I'm guessing, do the -- are the economics working for the operators? Like can they run the business and sustain this for some period of time? How does that work?

Greg Silvers -- President and Chief Executive Officer

Yeah. I think it is. I think as Greg noted and I'll have him comment after this, I think most people are adjusting their expense structure to accommodate kind of these -- and these restrictions are not uniform. I mean so, we have some jurisdictions where they're operating at -- almost at capacity.

So I think it's really going to depend, but it appears that they are able to scale their expense structure to their revenue side and it appears to be working. And candidly, they've been ramping throughout this quarter and continue to do that. But Greg, maybe you have something you could add on top of that?

Greg Zimmerman -- Chief Investment Officer

No, I think those are the important points. And you know, look, utilization -- especially in the early childhood education, utilization is steadily improving. In the private school, it's just been a relatively stable environment. You know, we'll have -- as I said in my script, we'll have a little more color on that at the end of the quarter as we see what happens going into next year with restrictions.

Mark Peterson -- Chief Financial Officer

Hey, Tony. I -- just looked up the answer to your question. In the third quarter, we collected in the low 60s as far as cash, right? That 41% of pre-COVID revenue and the theater number was about roughly about $15 million.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. So -- and is there a way to take the remainder and just divide that by what was due?

Mark Peterson -- Chief Financial Officer

I'm sorry, what was that?

Anthony Paolone -- J.P. Morgan -- Analyst

You said low $60s million, right?

Mark Peterson -- Chief Financial Officer

Right.

Anthony Paolone -- J.P. Morgan -- Analyst

With $15 million of it being the theaters, so in the high 40s, I guess, thereabouts from everything else? OK. I guess we can kind of back into then what that collection rate was --

Mark Peterson -- Chief Financial Officer

Yeah, kind of $40 million, kind of high 40s, everything else, right, if it's low 60s. So high $40 million, over $40-plus million of everything else.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. And then just last question. In 2021, you're supposed to deliver about $65 million of build-to-suits. What's the expectation that those will be able to pay rent? Like what's in that mix?

Greg Silvers -- President and Chief Executive Officer

Greg, maybe you have some color on that. I think, you know, we're evaluating all of these, Tony. And again, it's -- I think where we can delay things, we are. So we'll see if those come online, but I think most of those are non-theater kind of developments.

So our expectation is that they will perform as our non-theater portfolio is performing now. So Greg, maybe you have more color?

Greg Zimmerman -- Chief Investment Officer

Yeah. I completely agree. And I would say specifically, a couple of them are developments in areas of business that we've seen strong rebounds, so not worried about rent payments from there, Tony.

Anthony Paolone -- J.P. Morgan -- Analyst

OK. Thanks.

Greg Silvers -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Brian Hawthorne with RBC Capital Markets. Your line is open.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Hi, good morning. My first question is, so you mentioned the AMC Universal deal helped you with The Croods release. Do you expect The Croods then to be released with the other operators that are not AMC?

Greg Silvers -- President and Chief Executive Officer

Well, I don't know -- we don't know if Regal will be open, but I think most of the exhibitors are approaching the Universal deal as a pandemic-type environment and may play it, but they're not -- I don't think they are embracing the underlying kind of thesis of shortening the window. They're treating it as an aberration, but it would not surprise me that they're going to play it during then just given the dearth of product that's out there. But Greg, maybe you have some thoughts?

Greg Zimmerman -- Chief Investment Officer

Yeah, I agree. I completely agree. I doubt Regal will be open, given what's going on in here.

Brian Hawthorne -- RBC Capital Markets -- Analyst

OK. And then on the theater deferral agreement, so can we assume that the rent -- the timing for the rent to flip from percent rent to cash rent, was that somewhat aligned with the studio or the box office release schedule?

Greg Silvers -- President and Chief Executive Officer

Yeah. It was somewhat aligned, but I would have to say, we took a more conservative approach and kind of backed it up. So I think we thought that we would be back to -- maybe not full rent, but paying more of a percent of contractual rent into the fourth quarter and you see that reflected in our forecast for cash collections being down, Brian. So I think when we cut these deals back in kind of May and June, I think we felt like there would be a better path than we're on right now, candidly.

Greg Zimmerman -- Chief Investment Officer

Sure. Brian, the other thing I would say is that the two material things that happened in October, one was the James Bond movie was pushed to next year. We had been hoping that that would drop. And then obviously, Regal, deciding to close all their theaters, so that led us to embrace a more conservative approach.

Brian Hawthorne -- RBC Capital Markets -- Analyst

OK. And then does the Callaway Golf acquisition change your opportunity with Topgolf at all?

Greg Silvers -- President and Chief Executive Officer

Again, I think it -- the opportunity still is strong. I mean, I think we feel like and we've had discussions with everybody, all the participants in that and feel like, again, it makes -- it creates a stronger tenant. But they've assured us that Topgolf is their growth vehicle that they're looking at and that they still want us to be an active participant with that.

Brian Hawthorne -- RBC Capital Markets -- Analyst

OK. And then last one for me. The maintenance capex was up this quarter. Can you talk about what drove that and should we expect that going forward?

Mark Peterson -- Chief Financial Officer

Marginally, the -- some of the transition related to moving our -- some early ed facilities to Creme de la Creme. Frankly, that was elevated this quarter. We don't expect that same level to persist.

Brian Hawthorne -- RBC Capital Markets -- Analyst

OK. Thank you, guys.

Mark Peterson -- Chief Financial Officer

Thank you.

Greg Silvers -- President and Chief Executive Officer

Thank you, Brian.

Operator

Your next question comes from the line of RJ Milligan with Raymond James. Your line is open.

RJ Milligan -- Raymond James -- Analyst

Thanks. Good morning, guys. You comments on -- you commented that additional permanent rent reductions may be required. And I'm just curious, does that just pertain to the movie theater category or other categories included in that possibility? And what are the factors that will impact sort of reducing rents permanently versus just extending deferrals going forward?

Greg Silvers -- President and Chief Executive Officer

It could, but I think primarily, we're talking in the theater space. I think that's where -- given the kind of tenure that we've had today, RJ, about how non-theaters is bouncing back very strongly. I think our couching there is, again, there's no doubt that kind of restructuring risk has risen to a higher level as we move through this pandemic and so I think that's kind of the triggering mechanism. We've cut these deals.

If you look at our overall portfolio and our largest exposures with AMC, Cinemark, and Cineworld, clearly, we've cut a deal with AMC, so we think we've positioned ourselves well there. We don't believe that Cinemark is a restructuring risk. And so our risk, I would say, is primarily in the Cineworld area. And again, it's -- that those are not -- our deals don't reflect that they will restructure right now, but I think we are trying to be candid with the investing public that if we -- if once you -- when you go into a restructuring that you position yourself the best you can, but we've made the decision, given our portfolio, we're not going to do kind of the pre-emptive act that we did with AMC.

So I think that's where we're trying to be kind of thoughtful in our language, but Greg, maybe you have something to add to that?

Greg Zimmerman -- Chief Investment Officer

No, I think you covered it, Greg.

RJ Milligan -- Raymond James -- Analyst

OK. And my second question is, what percentage of ABR of the theaters pre-COVID is now on a cash basis? And sort of what are the factors that might push more of that exposure on to a cash basis?

Mark Peterson -- Chief Financial Officer

Really, the primary two that are on a cash basis are AMC and Regal. And I think pre-COVID, AMC was roughly 17% to 18% and I think Regal was 12% to 13%. So those are the primary two. There are some others that are on kind of a modified cash basis where we're not recognizing anything during the deferral period, so that percent overall is a little higher than the sum of those two, which is about 30% or so.

So probably be around, I would say, 35%, something like that.

RJ Milligan -- Raymond James -- Analyst

OK. And what would need to happen in terms of converting the rest to a cash basis?

Mark Peterson -- Chief Financial Officer

Well, really, it's about their credit quality and our ability to see that they -- can they pay, is their credit strong? So as this thing moves on, we are constantly looking at their credit and their ability to satisfy their receivables because any time we decide to accrue a receivable, we've got to be a 75% or confident that we're going to collect -- 75% confident that we're going to collect 90% under the lease rules. So it's a pretty stringent rule. So we are looking at those and in this quarter, as we've talked about Regal, deteriorated enough credit-wise that we thought it didn't meet that threshold and that we were -- should put them on a cash basis.

RJ Milligan -- Raymond James -- Analyst

OK. Thanks, guys. That's it.

Mark Peterson -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is open, sir.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Mark Peterson -- Chief Financial Officer

Good morning, John.

Greg Silvers -- President and Chief Executive Officer

Good morning, John.

John Massocca -- Ladenburg Thalmann -- Analyst

As we think of some of the stronger non-theater operators in the context of cash flow, when would you expect some or the bulk of repayment of those deferred amounts maybe that happened earlier in the year to come to you, EPR? And was any of that flowing through in 3Q '20?

Greg Silvers -- President and Chief Executive Officer

Yeah. I don't think we had -- and I'll let Mark answer this. I think this is mainly starts flowing through in 2021 just because of -- that we took a kind of conservative approach in how long that ramp would take, but I think it would begin to flow some in 2021. But Mark, maybe you have more on that?

Mark Peterson -- Chief Financial Officer

No, that's correct. I agree with that. They generally start in '21 and generally go beyond 2021, in some cases, over the remaining lease term for some of our theater tenants. But I think what Greg said is accurate.

John Massocca -- Ladenburg Thalmann -- Analyst

But if -- like non-theater, would those come sooner rather than -- I mean, obviously, theaters a little bit in flux, but people who've seen maybe a little more of a recovery, could that potentially be a positive tailwind to cash flow? And maybe is that a 2020 event?

Greg Silvers -- President and Chief Executive Officer

It wouldn't be -- I don't think it's going to be a 2020 because everybody is a little still skittish about second wave and how that's going to impact. I do think though it could accelerate some of our payback in 2021 just because the impact has not been as severe as was anticipated when these deals were cut.

John Massocca -- Ladenburg Thalmann -- Analyst

OK. And then as we think about some of the commentary on moving subsidiaries to guarantee some of the current lease obligations. I mean is that largely a procedural or clerical act or is there some factors that could keep that from happening?

Greg Silvers -- President and Chief Executive Officer

I think -- and I'll let Mark add on this, but I think it's largely a procedural, which the subsidiary guarantees and things like that are pretty common for non-investment grade. And when we drop below these credit ratings, the -- it is more procedural than it is kind of something unique to EPR. But Mark, maybe you have something to add beyond that?

Mark Peterson -- Chief Financial Officer

You know, I would agree. We had two out of three ratings go below investment grade. We're required to provide those really to all unsecured debt, so everyone will get that subsidiary guarantee, but it's frankly just procedural. There's not much to it.

John Massocca -- Ladenburg Thalmann -- Analyst

OK. Understood. And then the increase in liquidity requirement on the modification that occurred was announced yesterday. As you negotiate with the private placement holders, I mean, is there a potential for more liquidity requirements there or is that probably the kind of high watermark for liquidity requirements going forward?

Mark Peterson -- Chief Financial Officer

Yeah. I mean it was an easy give. I mean we held -- held our interest rate schedules and everything else the way we had it before. So if you think about it, we get to count cash on hand plus undrawn amounts on our line of credit.

So we have $1 billion -- over $1.2 billion of liquidity, so the idea of -- you have to maintain, it was $250 million going to $500 million was a pretty easy give and then I've got $700 million of -- $700 million plus of cushion there. So that takes us all the way through the end of next year as far as that liquidity requirement. So, number one, we don't anticipate another modification, knock on wood. Number two, the $500 million is pretty easily achievable when you're sitting at $1.2 billion currently.

John Massocca -- Ladenburg Thalmann -- Analyst

OK. Undertood. That's it for me. Thank you very much.

Mark Peterson -- Chief Financial Officer

Thanks, John.

Greg Silvers -- President and Chief Executive Officer

Thanks, John.

Operator

Your next question comes from the line of Joshua Dennerlein with Bank of America. Your line is open.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Yeah. Good morning, guys.

Greg Silvers -- President and Chief Executive Officer

Good morning, Josh.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

In the past, I think you flagged a 5% of maybe the pre-COVID rent to be permanently adjusted or maybe you called it restructuring. Is that still how you're thinking about the portfolio or do you think that's maybe increased or fallen?

Greg Silvers -- President and Chief Executive Officer

Again, Josh and that's what we talked about earlier. In Greg's comments, he said, what you know -- it's reflective of our agreements right now with some cushion built into that. What we -- what -- in Greg's comments, what he said is that doesn't anticipate any sort of major restructuring, i.e., bankruptcy of those. I think when you look at our tenants right now, that risk is really in kind of the theater portfolio or the majority of that risk is in the theater portfolio.

So I think what we've tried to do is quantify the risk that we know now. We have some cushion in that risk, but at least acknowledge that it doesn't accommodate for a full bankruptcy risk. Now we've tried to address that with AMC and the fact that we've already kind of felt like we've restructured or restructured our portfolio to address that. And as I said earlier, we don't think that Cinemark is a restructuring risk, so it really comes down to us from the theater side of Cineworld and some of our smaller operators.

But when you go beyond our -- kind of our fourth-largest theater tenant, we've really -- you know, it's three or four theaters or two theaters and one theater. So the real risk is in the bigger groups. But Greg, maybe you have something to add beyond that?

Greg Zimmerman -- Chief Investment Officer

No, I think that's absolutely right, Greg. I mean it's plus or minus 150 theaters that we own are in our top 4 tenants. So the other 30 are sprinkled among a number of other operators. And as Greg said, anywhere from four to one theater.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. I appreciate that, Greg. And then, I guess, movies just keep getting pushed out and out for like the releases. Do you know what the studios are doing as far as like new movies? Like I was wondering if um, -- the way I'm thinking about it is, if they keep pushing things back, maybe they're not making new ones at this point and maybe we get out two years and there's kind of a [Inaudible] in the movie theater window.

Any kind of insight there would be great.

Greg Silvers -- President and Chief Executive Officer

I think what we saw, Josh, was kind of what has occurred. Yeah, we've seen some pushing out, but we also had pushing out of production during the COVID period. You know California just resume production probably in the last kind of six to eight weeks. So I think that it created a hole and -- but I think that that is starting to ramp up, but I think you will see -- what it will lead to is strong -- a good strong portfolio of titles in 2021 and probably 2022, just because of that backdrop.

And by then, given when this -- when we get some return to normalcy, I think it will be -- as we get out to 2023, it will be fine, but I do think that all of production was impacted probably from April to August. So things that were in pre-production or in post-production probably have gotten pushed. And so we may see some titles and you've already seen it with some of the major studios start moving titles even late '21 titles into '22.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. Thank you. [Inaudible]

Operator

And your next question comes from the line of RJ Milligan with Raymond James. Your line is open.

RJ Milligan -- Raymond James -- Analyst

Hey, guys. Just one quick follow-up. On the, uh -- during the quarter, there was a big income tax expense and I'm just curious if you could talk about that and if we can expect -- if that's just a one-time thing or there's potential for that to be elevated going forward?

Mark Peterson -- Chief Financial Officer

Really, that was a deferred tax write-off noncash. That was really a one-time thing. We just won't record deferred tax assets going forward. Our provision will be more or less our cash provision.

So that related to as a result of COVID-19, us not feeling comfortable within the entities that fit -- that caused that deferred tax asset, which is related to Kartrite and in some of our Canadian entities in terms of, with the COVID disruption, did we feel confident that we were going to realize that asset. So we reserved, put an allowance of that $18 million on that deferred tax asset, but that's not something that will repeat itself.

RJ Milligan -- Raymond James -- Analyst

OK. Thanks.

Mark Peterson -- Chief Financial Officer

Thank you.

Operator

Excuse me, speakers. I'm not showing any further questions at this time. You may continue.

Greg Silvers -- President and Chief Executive Officer

Well, thank you, everyone, for joining us today. We appreciate your time and attention. We look forward to talking to you all soon and probably most of you at NAREIT. So have a great day and we'll talk soon.

Thank you.

Mark Peterson -- Chief Financial Officer

Thanks, everyone.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Brian Moriarty -- Vice President, Corporate Communications

Greg Silvers -- President and Chief Executive Officer

Greg Zimmerman -- Chief Investment Officer

Mark Peterson -- Chief Financial Officer

Nick Joseph -- Citi -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Anthony Paolone -- J.P. Morgan -- Analyst

Brian Hawthorne -- RBC Capital Markets -- Analyst

RJ Milligan -- Raymond James -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

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