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EPR Properties (NYSE:EPR)
Q1 2021 Earnings Call
May 06, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and thank you for standing by. Welcome to the Q1 2021 EPR Properties earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Brian Moriarty, vice president of corporate communications.

Please go ahead.

Brian Moriarty -- Vice President of Corporate Communications

Thank you, Alicia. Hi, everybody, and welcome. Thanks for joining us today for our first-quarter 2021 earnings call and webcast. Participants on today's call are Greg Silvers, president and CEO; Greg Zimmerman, executive vice president, CIO; and Mark Peterson, executive vice president and CFO.

I'll start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition of the 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 these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance.

A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished in the SEC -- to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available in the investor center of the company's website, www.eprkc.com. Now I'll turn the call over to the company's president and CEO, Greg Silvers.

Greg Silvers -- President and Chief Executive Officer

Thank you, Brian. Good morning, everyone, and thank you for joining us on today's first-quarter 2021 earnings call and webcast. Against the backdrop of the reopening of the U.S., we are seeing consistent improvements in our business fundamentals. Key among these include accelerated cash collection levels and significant progress in our theater portfolio.

Our increased cash collection levels reflect strengthening the businesses and an increasingly more positive environment for the experiences our properties deliver. At a macro level, with the broad increase of vaccine deployment, we are seeing a meaningful improvement in consumer confidence and stabilization of the economy as is evidenced by employment and GDP data. Separately, the new protocols from the CDC for fully vaccinated people reflect the opportunity to achieve increasing levels of normalcy and life as we once knew it. Across our portfolio, consumers have been exhibiting their desire to experience out-of-home entertainment, and our tenants businesses have been beneficiaries of this pent-up demand.

In particular, during the quarter and continuing through April, consumers demonstrated their desire to return to theaters as we achieved new box-office high since the onset of the pandemic. Importantly, this momentum has been established in an environment with capacity constraints, limited content and direct-to-consumer streaming options, which provide the opportunity to view select features at home. Said another way, even with the challenges and limitations of the current operating environment, these results indicate that consumers still value the theater experience for new movie titles. We look forward to being able to fully maximize the reopening of theater exhibition as we expect that 98% of our theaters will be opened by the end of May, and consumers will have the opportunity to see a strong lineup of film titles for the remainder of 2021, many of which have been delayed several times.

As we continue to manage the business, we remain laser focused on our goals for 2021, including our exit from covenant relief, reestablishment of a dividend and a return to sustained growth. During the quarter, we also made progress on our strategic capital recycling activities and utilized proceeds from dispositions and stronger collections to pay off the remaining $90 million balance on our $1 billion unsecured revolving credit facility. These steps of strengthening liquidity and optimizing the portfolio are supportive of our goals and should fuel growth as we move into the second half of the year. This was an important quarter as we sustained ongoing positive trends in key business measures necessary for us to add our existing debt covenant waivers, most specifically, continued improvement of our cash collection levels.

As I stated earlier, the trends appear to be very favorable at this point, including vaccinations, consumer demand and exhibition recovery. Having positive momentum across all these areas should propel us toward the achievement of our goals. Now I'll turn the call over to Greg Zimmerman to discuss the business in greater detail.

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Thanks, Greg. At the end of the first quarter, our total investments were approximately $6.5 billion with 354 properties in service and 93% occupied. During the quarter, our investment spending was $52.1 million, entirely in our experiential portfolio. The spending included build-to-suit development and redevelopment projects that were committed prior to the COVID-19 pandemic, as well as the acquisition of a newly constructed TopGolf facility in San Jose, California, for $26.7 million, which was acquired primarily with cash received from TopGolf as payment of a portion of their deferred rent balance.

Effectively, we acquired TopGolf, San Jose, using a portion of their deferred rent as currency, a creative and complementary outcome for both sides. Our experiential portfolio comprises 280 properties with 42 operators is 93% occupied and accounts for 91% of our total investments or approximately $5.9 billion of the total $6.5 billion. We have four properties under development. Our education portfolio comprises 74 properties with eight operators and at the end of the quarter was 100% occupied.

Now I'll update you on the operating status of our tenants, our deferral agreements and rent payment time lines. 71% of our theaters were open as of April 30. Under Regal's announced reopening schedule, all of our Regal theaters will be opened by May 21. And at that point, we anticipate 98% of our theaters will be open.

Five of our theaters remained closed because of governmental orders. All four of our Canadian theaters are closed at least through May 20 due to governmental mandate, and our dine-in theater in San Francisco is closed until July because of local indoor dining restrictions. We have five vacant theaters not operated by any of our major exhibitors, which we are releasing and seven closed theaters, which we are selling, six of which are under contract. Finally, we are continuing to operate two theaters through a third-party manager, a former AMC in Columbus, Ohio, and the former Goodrich Savoy in Champagne, Illinois.

April's box-office performance exceeded industry expectations, led by King Kong versus Godzilla, Mortal Combat and Demon Slayer. The outperformance of all three films drove box office to $189 million for April, a 66% increase from March's $113 million. The strong results from these three films show the consumer is eagerly embracing the opportunity to get back to the movies. We are particularly encouraged by these results, given that most theaters are still operating under capacity restrictions, Regal is still ramping up U.S.

openings and won't be fully open until late May and that less than 20% of Canadian theaters are open. With increasing vaccinations, the approach of summer and easing restrictions, the primary challenge for exhibitors now is a lack of film supply. The remaining film slate of high-quality, tent-pole films lines up nicely to drive increasing consumer demand through 2021, beginning at Memorial Day with A Quiet Place Part II and following with Venom: Let There Be Carnage, Dune, Cruella, Fast and Furious 9, Black Widow, Suicide Squad, Shang-Chi and the Legend of the Eternals, Ghostbusters: Afterlife, Top Gun: Maverick, Spider-Man: No Way Home, the Kingsman and Matrix 4. Studios, content providers and the consumer all value the big-screen experience.

April's performance bears that out. I want to briefly address lessons learned over the past year. The studio's decision to delay the release of the vast majority of their tent-pole titles until theaters reopened in 2021 and 2022 is the best evidence of their commitment to the exhibition economic model and the importance of the theatrical window as a critical revenue driver for the studios and content providers. COVID-19 forced studios and exhibitors to experiment.

Studios understandably evaluated alternative content delivery options, including premium video on demand, PVOD; subscription video on demand, SVOD; hybrid models of theatrical release mixed with PVOD or SVOD; and selling movies to streaming services. We believe the best indicator of the results of this experimentation is that the overwhelming majority of tent-pole films scheduled for theatrical release pre-COVID-19 will be released theatrically 2021 or 2022. It made economic sense for the studios to wait until theaters were permitted's to reopen throughout the U.S., and they did. Studios and content providers do not consider PVOD, SVOD and other forms of at-home viewing as replacements for theatrical exhibition.

Consumer subscribed to streaming services for all-you-can-eat buffet content and generally aren't interested in paying an upcharge for an individual release. The relative lack of PVOD content during COVID-19 at a time when much of the country was looking for any entertainment option in their home demonstrates that studios don't see a big market for PVOD. Strong box-office numbers for Warner Bros. Films released day and date to theaters and HBO Max without upcharge also bear this out.

While streaming services need content, it's hard to make the math work for PVOD or direct to SVOD without a theatrical release for major motion pictures. Additionally, major exhibitors continue their negotiations with the studios on the length of the exclusive theatrical window. It appears to be coalescing around 45 days, down from the prior 90 days. From our perspective, there are positives.

Historically, over 90% of ticket sales occurred in the first 45 days. So economically, the shift in the window is not that material. With the reduced window and the need for studios, content providers and exhibitors to continue experimentation, we could see content from Netflix, Amazon and Apple shown theatrically before being moved to streaming services. Just this week, Cinemark and Marcus both announced announcement -- both announced agreements with Netflix to show Army of the Dead in theaters for one week, starting on May 14 before it's available on Netflix on May 21.

This follows Cinemark and Netflix's partnering to show Ma Rainey's Black Bottom, the Midnight Sky and the Christmas Chronicles 2 theatrically. The consumers' desire to return to see movies on the big screen is reflected in the surprisingly strong performance of King Kong versus Godzilla, Mortal Combat and Demon Slayer. When theaters were allowed to reopen, box-office records were set in China, Japan and Australia. Our tenants are coming up with new and better ways to enhance the customer experience from touchless ticketing and concession ordering to private screenings.

Going to the movie still remains a remarkable value for an out-of-home consumer experience. Turning now to our other major customer groups. Approximately 96% of our non theater operators are open. Our seasonal businesses are closed in the normal course.

With increases in vaccinations and the fast approach of summer, we see continued strong performance in our drive-to value-oriented destinations. We are pleased with the results from the ski season. People demonstrated they still want to ski, particularly in drive-to destinations. Across the portfolio, attendance was in line with three-year averages, and revenues were down only slightly, reflecting restrictions on food and beverage in many locations.

We continue to see strong performance across Eat & Play. All of our TopGolf locations, including our recently acquired San Jose location, are open. All four of our Andretti Karting locations are open, and we're delighted that our fifth in view for Georgia will open in May. All of our gyms are open and attendance continues to increase.

We are seeing very strong pent-up demand across our attractions and cultural holdings. We expect this trend to continue throughout the summer as vaccinations increase and restrictions are lifted. The City Museum, Santa Monica Pier and our Titanic Museums are open. We expect all of our amusement parks and water parks to open in 2021.

Seven are currently open. Five have confirmed May opening dates, and we're awaiting dates for the final two, subject to state restrictions in California and Washington. We are likewise seeing strong demand in our experiential lodging portfolio and expect the trend will continue throughout the summer as well. Except for the Kartrite Resort & Indoor Water Park in the Catskills and the Bellwether Beach Resort on St.

Pete Beach, all of our experiential lodging assets are open. Kartriteremains subject to New York State phased reopening plans for water parks, and we are working toward an opening in the summer of 2021. We are completing a substantial renovation of the Bellwether, and it will fully reopen by mid-June. Resorts World Catskills is open.

All of our early childhood education centers are open, and we are seeing a steady increase in demand monthly as COVID restrictions ease and parents return to work. All of our private schools are open, utilizing a combination of in-person, online and hybrid instruction models. Our primary capital recycling activity has been in the theater category. In Q1, we sold one theater property and a vacant non-theater building for net proceeds of $13.7 million.

We're very pleased with our progress in disposing vacant theaters. Since Q1 -- Q3 2020, we have sold three theaters. And as I mentioned earlier, we have executed contracts for another six. In Q4, we terminated all seven of our AMC transition leases and took back the properties.

We're operating one. In Q4, we sold one for an industrial use. We have executed contracts for the remaining five. We also have a former CMX theater, which was rejected in bankruptcy under contract.

These six projected sales are for industrial, multifamily, office, and theater reuse, and we anticipate closing on all six sales throughout 2021 and into 2022. Finally, I want to update you on the status of our cash collections and deferral agreements. Throughout the COVID-19 pandemic, our No. 1 priority was to work proactively and diligently with our customers to structure appropriate deferral and repayment agreements.

We tailored each deal to give them the right amount of breathing room to reopen efficiently and help ensure their long-term health, all while protecting and improving our position in rights as landlord. We wanted to and have helped them through a period where they had significantly reduced or no cash flow, allowing them to ramp back to a stabilized cash flow. Our agreements are generally structured with rent and mortgage payments, including deferred amounts, commencing and ramping up through 2021, and in some cases, after 2021. Cash collections continue to improve in conjunction with reopenings.

Tenants and borrowers paid 72% of contractual cash revenue for the first quarter and 77% in April. We're seeing results from these efforts, and I want to share two examples of this win-win approach. First, as noted earlier in my remarks, we are delighted to have acquired the brand-new TopGolf San Jose, which opened on April 16, using a portion of their deferred rent as currency. San Jose is TopGolf's second location in California.

It's an outstanding location in a compelling DMA. The transaction reflects our long and valued partnership with TopGolf and our creative approach throughout the pandemic to work with our tenants to address difficult issues. Second, as noted, the ski season was strong. Early in the pandemic, before anyone knew what the ski season would look like, we worked with CamelBak to ensure they had sufficient cash to weather what we all feared could be a rough winter.

Because Ski season was strong, in April, CamelBak repaid its entire deferred balance six months early. Again, this demonstrates our commitment to taking the long view of our customers' ability to perform informed by the underlying strength of our underwriting and real estate. Finally, customers representing substantially all of our contractual cash revenue, which includes each of our top 20 customers, are either paying their contract rent or interest or have a deferral agreement in place. In those deferral agreements, we have granted approximately 5% of permanent rent and interest payment reductions.

Mark will provide additional color on the revenue recognition and cash collection implications for the second quarter of 2021. I now turn it over to him for a discussion of the financials.

Mark Peterson -- Executive Vice President and Chief Financial Officer

Thank you, Greg. Today, I will discuss our financial performance for the quarter, provide an update on our balance sheet and strong liquidity position and close with some estimated forward information. I am pleased that I'll be briefer than I have been in the past few quarters. FFO as adjusted for the quarter was $0.48 per share versus $0.97 in the prior year.

And AFFO for the quarter was $0.52 per share, compared to $1.14 in the prior year. Total revenue from continuing operations for the quarter was $111.8 million versus $151 million in the prior year. This decrease was due primarily to the accounting for restructured agreements with various customers, and revenue from certain tenants, which continue to be recognized on a cash basis, both as a result of the COVID-19 impact. This decrease was also due to property dispositions and an increase in vacancies.

Additionally, we had lower other income and lower other expense of $6.9 million and $7 million, respectively, due primarily to the Kartrite Resort & Indoor Waterpark remaining closed due to COVID-19 restrictions. Percentage rents for the quarter totaled $2 million versus $2.8 million in the prior year. This decrease related to lower percentage rents from tenants due to the impact of COVID-19 on their operations, as well as our disposition of certain private schools in December of 2020. This decrease was partially offset by additional percentage rent from an early education tenant due to a restructured agreement.

I would like to point out, as I did last quarter, that we are defining percentage rents here as amounts do above base rent and not payments in lieu of base rent based on a percentage of revenue. Property operating expense of $15.3 million for the quarter was about $2.2 million -- was up about $2.2 million from prior year, due primarily to increased vacancy. Interest expense increased by $4.4 million from prior year to $39.2 million. This increase resulted, in part, from a higher weighted average amount outstanding on our $1 billion revolving credit facility.

As you may recall, at the end of the first quarter of 2020, we borrowed $750 million as a precautionary measure to provide us additional liquidity during the uncertainty caused by COVID-19. At December 31, 2020, due to stronger collections and significant liquidity, including proceeds from dispositions, we reduced the outstanding balance to $590 million and then further reduced the balance to $90 million in January of 2021. Subsequent to quarter end, we used a portion of our cash on hand to pay off the remaining balance. Adding to the increase in interest expense, we continue to pay higher rates of interest on our bank credit facilities and private placement notes during the covenant relief period of about 100 basis points and 125 basis points, respectively.

We also earned less interest income from short-term investments in the first quarter as we use cash on hand to pay down the revolver and deposit rates were also lower than last year. Lastly, during the quarter, we reduced our allowance for credit loss on our mortgage notes and notes receivable, which resulted in a credit loss benefit of $2.8 million versus a loss of $1.2 million in the prior year. This benefit resulted from changes in the macro environment due to signs of recovery from the pandemic, which reduced the allowance calculated using our third-party model. Note that this benefit is excluded from FFO as adjusted.

Now let's turn to our balance sheet and capital markets activities. Our debt-to-gross assets was 39% on a book basis at March 31. At quarter end, we had total outstanding debt of $3.2 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 4.7%. 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, which currently has a 0 balance.

As previously discussed, due to the impact of COVID-19 on our near-term financial results during 2020, we amended our bank credit facilities and private placement notes to waive certain covenants through the end of 2021, subject to certain conditions. This provides us additional time and flexibility to work with our customers. Note that we can elect to get out of the covenant relief period early, subject to certain conditions. We had $538.1 million of cash on hand at quarter end.

And as I mentioned, we paid down our revolver to 0 in April. Cash collections from customers continued to improve, and we're approximately 72% of contractual cash revenue or $98.1 million for the first quarter and 77% for April. During the quarter, we also collected $29.5 million of deferred rent and interest from accrual basis tenants and borrowers, including the payment received from TopGolf that was used to purchase its San Jose location. And the deferred rent and interest receivable balance on our books at March 31 was $59 million.

Subsequent to the end of the quarter in April, we received an additional $10.5 million of such deferral payments, bringing the year-to-date total to $40 million. We expect to continue to collect deferred rent and interest from accrual basis tenants and borrowers, primarily over the next 36 months. We are encouraged by the positive signs we are seeing in our customers' businesses, and we anticipate the positive trajectory of cash collections to continue over the remainder of 2021 and into 2022. As previously announced, due to the uncertainties created by the COVID-19 disruption, we are not providing any forward earnings guidance.

However, we would like to update you on the expected ranges of contractual cash revenue that we expect to recognize in our financial statements for the second quarter of 2021, as well as our expected collections that relate to that same period. The expected range we expect to recognize in Q2 2021 of such contractual cash revenue is $109 million to $116 million or 80% to 85%. Additionally, the expected range we expect to collect of such contractual cash revenue in Q2 of '21 is $102 million to $109 million or 75% to 80%. Differences from the full amount of contractual cash revenue relate to deferrals granted and the associated accounting, as well as abatements.

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 evident from our discussion today, we are very pleased with our results and the trajectory of the recovery. The continued success of the vaccine deployment should further strengthen the momentum of experiential assets. As we've discussed previously and today, we do not have a consumer demand issue but rather a restricted environment.

And as these restrictions continue to be relaxed, our properties and tenants will benefit from this pent-up demand. With that, why don't I open it up for questions. Alicia?

Questions & Answers:


Operator

[Operator instructions] Your first question comes from the line of Katy McConnell of Citi.

Parker Decraene -- Citi -- Analyst

Hi, everyone. This is Parker Decraene on for Katy. Thanks for taking the question. I guess the first one I have is just so I could understand more about the ramp-up of content.

Do you think that there's a chance that some of this new content actually pulls up as more theaters reopen and I think the 66% increase in box-office revenues helped. But do you think that there's just a chance that, that comes up and it pulls up over the next couple of months?

Greg Silvers -- President and Chief Executive Officer

I think there's a chance. But I would say, and I'll ask Greg to join in, I think most of the dates are fairly settled now. People -- I mean, we saw a little bit -- I mean, Quiet Place II pulled up into Memorial Day weekend. But I think now with things kind of settling down and people seeing their trajectory, the weekends are kind of allocated.

If it occurred, I would say it would be something in the fourth quarter right now. But Greg, maybe you have some thoughts?

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

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

Parker Decraene -- Citi -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

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

I think now it's about building the pipeline for execution in the second half of the year.

Parker Decraene -- Citi -- Analyst

OK. Thanks, guys.

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Thank you.

Greg Silvers -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line o f Anthony Paolone of JPMorgan.

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

Well, I think, Tony, we've done some work on kind of things of that nature. It's probably we could sustain a -- and Mark, I know we worked on this, somewhere probably 35% to 45% reduction in revenue to get to a 1.0. So it could be substantial reduction. And I think, again, 2021 is going to be a ramping year.

I think what we're all looking for now is kind of what this 2022 as we are in the normalcy. But I think, if anything, right now, our exhibition partners are thinking the second half of the year, if this continues, could be -- exceed expectations because of this pent-up demand. So I think trying to see kind of where coverage is for a partial year is going to be difficult. But we know that there's a lot of flexibility in the overall expense structure.

We also know that a lot of our operators have made considerable improvements as -- in all of our experiential tenants with margin improvement and improved the technology that they're bringing to bear. So that 35% to 40% reduction was based on the old model. So it may have, in fact, improved from there, Tony.

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

They can. I mean -- and I'll ask Greg, the challenge that we always have had in the theater industry is the capacity as looked at on a seven-day week, and we drink from a fire hose from Friday, Saturday and Sunday. So we are operating even now with some of the titles that Greg mentioned. We're selling out all shows on the weekend.

And to date, we still don't see people transferring to Monday and Tuesday. So if you looked at a capacity, you would say, right now on a full seven day, you have the capacity if everybody balanced themselves out. But still people are focused kind of on that weekend activity where the capacity constraints really tend to come into play. But Greg, maybe you have some additional thoughts?

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

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

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

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

Mark Peterson -- Executive Vice President and Chief Financial Officer

Yes. Tony, it's Mark. First of all, you got to take straight line out of that, which is about $36 million. Our AR was about $60-ish million and the deferred number was about $59 million.

So typically, we don't have that much AR. We have some, maybe a couple million. So it's high because we have deferred accounts receivable on our books that, as I mentioned, we'll get paid over the next roughly 36 months, most of it. So we expect that number to come down[Audio gap] quarter because we're still deferring some, and then we're collecting some, but we're collecting more than we're deferring.

And that number will ultimately -- the deferral number ultimately should go to essentially 0 roughly in the next 36 months. Because typically, we just don't carry that much kind of traditionally of course, the balance will still be -- total balance will still be up there because of straight line as well.

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

Yes. Tony, I mean, I think -- again, that's always a board decision, but I think we would probably look at the balance of '21 as some sort of minimum taxable payout and then get on a trajectory as we move into '22. I think, again, we like that kind of low 70s payout as a kind of a guidepost. But as I said, that's a board decision.

And as we come out of covenant relief and the trajectory that we're on, clearly, it's very important feature to our board. We understand why people own REITs and the fact that dividend is an important component. And our board is -- it's at the top of their mind to getting back to paying a dividend.

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

OK. Thank you.

Greg Silvers -- President and Chief Executive Officer

Thank you, Tony.

Operator

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

Rob Stevenson -- Janney Montgomery Scott -- Analyst

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

Mark Peterson -- Executive Vice President and Chief Financial Officer

Yes. We need to demonstrate compliance with our covenants at the end of a quarter without the benefit of the waiver. So -- and the most restrictive covenant that is the hurdle is the debt to total asset covenant that's in our bank and private placement notes. And the reason that's the most restrictive is the way asset value is measured, which is essentially looking at NOI for the quarter times four.

So as that NOI ramps up, which we expect to -- has been happening, expect to continue in Q2, that number goes down, and we need to be under 60%, the way it's measured in the agreement, debt to total asset value. So that's really the main -- we're really good on the coverage ratios and so forth. It's really that 1 being the tightest. And as Greg said, we expect to hopefully come out of the covenant relief period early, given the ramp we're seeing in our operations sometime during the second half of the year.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

OK. So it's not June 30, it's more likely to be September -- end of September type of thing before realistically you can get there?

Mark Peterson -- Executive Vice President and Chief Financial Officer

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

Greg Silvers -- President and Chief Executive Officer

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

Rob Stevenson -- Janney Montgomery Scott -- Analyst

OK. That's very, very helpful. And then when you look at stuff like the TopGolf and the Andretti, where is utilization today versus prepandemic? And how significant are there any food and beverage restrictions there that are sort of limiting their revenues?

Greg Silvers -- President and Chief Executive Officer

Yes. I'll let Greg add more color on this, but what we're seeing now is for those type of businesses, they're approaching 2019 kind of number. So their business is a bounce back. And food and beverage restrictions are very, very kind of local and state kind of driven but for a lot of these, they're operating with very limited restrictions.

If you're Texas and Florida and things of that nature, far more. But Greg, you may have additional color.

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Yes. Rob, the other -- couple of things. Obviously, TopGolf is outdoor. So while there have been some restrictions, they've been easily able to manage them.

And then secondly, as Greg mentioned, I think most of our tenants have spent the last year rationalizing expenses, and that's really helped. So I would echo what Greg said. I think folks are getting back toward 2019 levels, and the demand is clearly there.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

I would say -- and I'll let -- again, I'll let Greg add to this. But if I was predicting, I would say our biggest challenge will be Washington state and Upstate New York. Those environments have been far more restrictive. Actually, California is relaxing at a much greater pace.

But those two seem to be the biggest. And then, although we don't have a water park there. I think anything in Canada, right now, they're really challenged, and in fact, as Greg noted, about a mandatory lockdown right now. So all kind of assets are being adversely impacted there.

But Greg, I don't know if you have anything --

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

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

So we're comfortable that it will be a good summer.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

OK. Thanks, guys. I appreciate it.

Greg Silvers -- President and Chief Executive Officer

Thank you.

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Thanks, Rob.

Operator

Your next question comes from Aidan Kim of KBR.

Unknown speaker

Sorry. Is that me? Can you hear me?

Greg Silvers -- President and Chief Executive Officer

Yes.

Unknown speaker

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

Mark Peterson -- Executive Vice President and Chief Financial Officer

Well, the contractual cash revenue today at 100%, it's $136 million cash, contractual cash revenue. So we expect to get that mostly through the -- toward the end of this year, and -- but there is some additional ramping into 2022, so to get back to that contractual cash revenue. Of course, anything we acquire adds to that number or dispose, of course, takes away from that number. But we expect that ramp to happen over the rest of this year primarily, and then there is some additional ramp, particularly in the attraction area that happens in 2022 that we get back to that full run rate.

Unknown speaker

And is that $136 million, does that include the mortgage interest? Or is that --

Mark Peterson -- Executive Vice President and Chief Financial Officer

Yes. That does include the mortgage interest. It does not include percentage rents, true percentage rents, rents over base amounts. But yes -- and it doesn't include, obviously, forward acquisitions and so forth.

But yes, it does include mortgage interest. It also includes CAM.

Unknown speaker

Got it. And when you talk about you guys collecting 77% of contractual rent in April, I mean, some of the deals are on a percentage basis. So how does -- so is this 77% -- but it's not -- is that including some deals where it's on a percentage basis, so even though you're collecting it, it's really not a full rent. Is that the right way to think about it?

Mark Peterson -- Executive Vice President and Chief Financial Officer

Yes. It's a good way to say it. It does have some variable rent in there. What we have is certain tenants are on a base rent.

And if their sales are better, they pay additional rent. And that really happened with somewhat of -- from our outperformance in Q1. So -- but I will say most of that rents that we're collecting is really fixed rent. It's on the margin we're getting additional amounts over kind of a base.

There's not a whole lot, especially moving into the second quarter, that's 100% variable. There's generally a base, and then there's, in some cases, an outperformance clause that if sales are greater than X, you'll pay additional rent over that percentage. And all those are payments toward that basin are included in that 77%.

Unknown speaker

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

Mark Peterson -- Executive Vice President and Chief Financial Officer

Well, on the line of credit, which doesn't have anything outstanding right now, it's about 100 basis points. And then we have a term loan, $400 million, that's about 100 basis points. And then the two private placement issues that totaled $345 million, it's 125 basis points. So it kind of goes back to the -- what it was before based on our ratings.

But kind of 100 basis points on the $400 million and then $125 million basis on about $340 million. So we expect that benefit going forward.

Unknown speaker

OK. Thank you.

Mark Peterson -- Executive Vice President and Chief Financial Officer

Thanks, Ki Bin.

Operator

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

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. Can we talk a little bit about your rent collection trends. Looks like you've been heading in the right direction, and you expect -- I think you collected 77% in April. But you only expect to collect 75% to 80% in 2Q overall.

So is that just -- I guess, why are we assuming a continuation of that uptick, if you're already at 77% in April? I mean, wouldn't that be at the bottom end of the range?

Greg Silvers -- President and Chief Executive Officer

Well, again -- go ahead, Mark. No, go ahead.

Mark Peterson -- Executive Vice President and Chief Financial Officer

I said it could potentially be better. But a lot of these things kind of ramp up quarterly. So we did see a nice increase from Q1 to April at 77%. Our guidance, 75% to 80%, obviously implies increase from what it was and there is a chance that, that number is at the high end, of course, at 80%.

So I think that's really it as lot of these agreements kind of ramp quarterly over time.

Greg Silvers -- President and Chief Executive Officer

Yes. I'd say, Michael, kind of go into Mark's earlier comment, we kind of have been stepping people up, and they're paying a percent of their base rent and then potentially some kicker. So we have a view, as we -- in April, we knew we were going up. So it -- the performance kickers, we really don't know.

I mean, those are the kind of the unknown. But all along, what we've said, we've tried to move away from pure percentage rent to base rent and gradually move them up as we ramp up. So we do have -- as moved into April, we knew it was going up because we were stepping people up as a percent of their contractual fixed rent that they were paying.

Mark Peterson -- Executive Vice President and Chief Financial Officer

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

Michael Carroll -- RBC Capital Markets -- Analyst

OK. And then can you talk about the expectations within, I guess, the film slate? I know you kind of highlighted some -- there are some beating expectations for a couple of the movies. But what about like Bond and Black Widow? I mean, what type of box-office number should we be looking at? I mean, what would be a success for those films?

Greg Silvers -- President and Chief Executive Officer

I think -- and I'll let Greg weigh in as well. But I think as we move into the fall, we're in to look for numbers that would have been similar to what we saw prepandemic. If you look at kind of Mortal Combat and Demon Slayer, which I'm sure it was on everybody's top of their wish list to go out and see over the last two weeks. But their numbers approached what their prepandemic expectation level was.

So again, it would be -- I think we will be looking at like a Bond as a post a $100 million film. And we will -- we think that, that's the way the studios are looking at it. But Greg, maybe you have more color?

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Yes. Michael, the other thing I would add is it's a moving target, obviously, based on performance on a weekly basis. But I think most analysts think that the box for the entire year will end up between $4 billion and $5 billion. And we're at about $450-plus-or-minus million right now.

So the second half of the year should be very strong.

Michael Carroll -- RBC Capital Markets -- Analyst

OK. And then, Greg, maybe on those, can you talk a little bit about the capacity restraints from those films? I think that you were saying earlier that they were showing them in more screens. So I guess, was the capacity constraint a big issue for those specific film titles, I guess I understand is the constraint for the overall box office, but what about those films specifically?

Greg Silvers -- President and Chief Executive Officer

I don't know if it's -- again, we're going to be -- those films, a lot of those are in the latter part of the year. So we don't know kind of where those constraints will be after. But as Greg spoke about earlier, one of the benefits that we have right now is the fact that we have less film content, so we can play it in more houses. But the reality is, as we move into the fall, we're getting a robust film release schedule.

So we will have more content in the ability of the operator to play a film in seven or eight houses probably will go away, just because the content calendar will be full. And you'll be back to a more traditional playing it in two to four houses.

Michael Carroll -- RBC Capital Markets -- Analyst

OK. Great. And then can you talk a little bit --

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Michael, I'm sorry, I just want to get to give you a couple of data. I mean, right now, there are nine states with 0 capacity restrictions basically. I mean, some social distancing but no capacity restrictions. And only seven states have less than 50% capacity.

So we're moving toward full capacity as the year progresses.

Michael Carroll -- RBC Capital Markets -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

I think as always -- I mean, what we can say generally is we're trying to -- well, we're not going to raise our theater exposure and looking to raise in our other areas. Again, we were pretty upfront as when we came into the pandemic that we were looking at gaming. I'm sure we're going to revisit that. But I think Greg and his team are looking whether that's attractions, Eat & Play, live entertainment, all of those other areas.

So what I can tell you is it won't be in theaters, but it will be broadly in our other areas of experiential.

Michael Carroll -- RBC Capital Markets -- Analyst

OK, great. Thank you.

Greg Silvers -- President and Chief Executive Officer

Thank you, Mike.

Operator

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

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning. So maybe following up on that last question. As you look to build out the pipeline of potential transactions maybe in 2H, what does the cap rate environment look like for those types of entertainment assets, at least in the prepandemic?

Greg Silvers -- President and Chief Executive Officer

Yes. I mean, I think, Greg, I'll let Greg talk about it, but I think still, we're kind of seeing mid-7s to low 8s. But I think those -- that's a pretty -- that's going to be driven by credit and the quality of the operator in the property. It's always California real estate and Eastern Seaboard is always a little more valuable.

But Greg, what do you think? Are those concerns?

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

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

John Massocca -- Ladenburg Thalmann -- Analyst

OK. But no, maybe compression for some of the more pandemic resistance entertainment assets?

Greg Silvers -- President and Chief Executive Officer

We may see some of that. Again, we're just kind of beginning to build up and kind of try to see what's out there, but it's -- these -- again, I think you clearly have seen the reverse of that in the theater space, but that's not an area that we're looking to deploy capital into. I think you've seen some degree of discussion of gaming assets. But I think overall, that range is still pretty solid.

John Massocca -- Ladenburg Thalmann -- Analyst

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

Greg Silvers -- President and Chief Executive Officer

I think we could say -- yes, I think Greg said that people are kind of paying in conformance with their agreements. And we feel -- as you mentioned earlier, we've we set those up to be mutually beneficial. I want to take the opportunity to commend our team for being creative in this -- I mean, like what they did with TopGolf and turning deferred rent into a quality asset is kind of first rate and allows us to be very thoughtful about how we approach this. But I think we structured agreements, people are honoring those agreements, and we feel good about the trajectory of where we're going from here.

John Massocca -- Ladenburg Thalmann -- Analyst

OK. And then one last quick one. I know it was relatively small. But what drove the slight decline in occupancy this quarter? Was it just the theater bankruptcy or was there something else?

Mark Peterson -- Executive Vice President and Chief Financial Officer

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

John Massocca -- Ladenburg Thalmann -- Analyst

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

Mark Peterson -- Executive Vice President and Chief Financial Officer

Thanks, John.

Operator

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

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

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

Greg Silvers -- President and Chief Executive Officer

Yes. I mean, again, Josh, I think we like the sector. We'll have to see if that transaction is still available. I mean, I think we know it hasn't transacted yet.

So it's something that could be available. We like the sector in the sense of our underwriting kind of proved how it kind of performed. And we think there's value there. And it's consistent with our strategy of becoming the most diversified experiential REIT for investors to have an alternate investing in it.

We feel like it's part of our strategy as we move forward, that people want exposure to experiential. They just don't want 1 category, and we're going to be able to give them a fully diversified option as we move forward. So I would expect us to aggressively look at gaming. We spend a lot of time on it beforehand.

And I don't see anything that would change that. But Greg, maybe you have some thoughts?

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

No, I agree. The other thing I would say is we've kind of said we've been focused on regional gaming because we like the resiliency, and we like the concept of drive to value entertainment, which is the bulk of our portfolio. And the pandemic has proved out that for sure, as Greg said.

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

Yes. Maybe one follow-up for me. Greg, you mentioned kind of diversifying the portfolio. Does that entail kind of just growing -- that's a place away from theaters? Or do you think we'll see heavier dispositions on that front, so you get more diversification?

Greg Silvers -- President and Chief Executive Officer

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

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

Great. Thanks for the color.

Greg Silvers -- President and Chief Executive Officer

Thanks, Josh.

Operator

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

Greg Silvers -- President and Chief Executive Officer

Sure. I just wanted to thank everyone. I appreciate your time and attention. And as we can see, we look forward to talking to you next quarter and hopefully continuing this momentum of what we've established here.

So everyone, have a great day, and we'll talk soon. Thanks.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Brian Moriarty -- Vice President of Corporate Communications

Greg Silvers -- President and Chief Executive Officer

Greg Zimmerman -- Executive Vice President and Chief Investment Officer

Mark Peterson -- Executive Vice President and Chief Financial Officer

Parker Decraene -- Citi -- Analyst

Anthony Paolone -- JPMorgan Chase & Co. -- Analyst

Rob Stevenson -- Janney Montgomery Scott -- Analyst

Unknown speaker

Michael Carroll -- RBC Capital Markets -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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

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