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EPR Properties
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Good day, ladies and gentlemen, and welcome to the EPR Properties third quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded.
I would now like to introduce your host for today’s conference, Brian Moriarty, Vice President, Corporate Communications. Sir, you may begin.
Okay. Thanks, Ashley. And thanks to everyone for joining us today for our third quarter 2018 earnings call.
I’ll start the call today by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, identified by such words as "will be," "intend," "continue," "believe," "may," "expect," "hope," "anticipate," or other comparable terms.
The company’s actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. A 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.
Now, I’ll turn the call over to company President and CEO, Greg Silvers.
Thank you, Brian. And good morning, everyone. Welcome to our third quarter 2018 earnings call.
As always, I'd like to remind everyone that slides are available to follow along via our website at www.eprkc.com.
With me on the call today is the company’s CFO, Mark Peterson, who will review the company's financial summary.
Good morning.
First, I'll get started with our quarterly headlines, then discuss the business in greater detail.
First, strong quarter boosted by prepayment fees. As compared to the same quarter previous year, our top line revenue grew by 17% and FFO as adjusted per share grew by 25%.
The results were driven by strong business fundamentals and from the payment in full on the Och-Ziff Real Estate mortgage note. This note as structured allowed us to recognize an additional prepayment fee of $20 million in the third quarter.
Two, tenant segments demonstrate strength. Box office revenues are up significantly versus the previous year and our diversified portfolio of property types and operators within our education and attraction investments illustrated solid performance.
The consumer continues to demonstrate their preference for experiences and our portfolio and tenets are well-positioned to benefit from that preference.
Number three, capital recycling plan execution. We are pleased with the successful execution of our capital recycling plan that we initiated at the start of the year. We continue to expect this plan, along with free cash flow, will fully fund our investment spending for the year without the need to issue additional equity.
Furthermore, these transactions have proven the inherent value of experiential assets and demonstrated their liquidity in the marketplace.
Four, balance sheet strength. With strong financial coverage ratios, 99% unsecured debt and no debt maturities until 2022, we have the balance sheet strength and financial flexibility to continue our success into 2019.
And finally, five, increasing earnings guidance. Our positive results to date, along with our outlook for the year, allow us to again increase our earnings guidance for the year. Our healthy pipeline of opportunities, along with our unique expertise and experiential assets, positions us well to continue to deliver strong results.
Now, I’ll discuss the business in greater detail. At the end of the third quarter, our investments were $6.7 billion with 391 properties in service that were 99% occupied.
During the quarter, investment spending was $116.5 million, bringing us to a total of $355 million year-to-date. Our proceeds from dispositions were $152 million, bringing us to a total of over $399 million year-to-date.
Additionally, our company level rent coverage was at 1.87 times, nicely above the approximately 1.7 times average we’ve seen over the past three years and highlights the strength and consistency of our operators businesses.
Now, I'll provide an update on our three segments. At quarter-end, our Entertainment portfolio included approximately $3 billion of total investments, with one property under development, 169 properties in service, and 23 operators. Our occupancy was 99% and our rent coverage was 1.86 times.
Investment spending in our Entertainment segment totaled $10.7 million, consisting primarily of build-to-suit development and redevelopment of megaplex theaters, entertainment retail centers and family entertainment centers.
Turning to industry updates, North American box office revenues were up over 11% versus prior year through last weekend. The third quarter box office was up 8% over the prior year, which was even better than we anticipated coming off a second quarter that was up over 20%.
The third quarter outperformance was driven by highly successful titles, such as Mission Impossible, Crazy Rich Asians, and we are optimistic that the full-year box office will exceed our previous estimate.
We continue to assert that content matters and 2018 is a prime example of Hollywood producing desirable content and consumers responding with their wallets.
At quarter-end, our Recreation portfolio included over $2.1 billion of total investments, with five properties under development, 75 properties in service, and 17 operators. Our occupancy was 100% and our rent coverage was approximately 2.07 times.
Investment spending in our Recreation segment totaled approximately $73.8 million during the third quarter, which included $45 million on the Kartrite waterpark hotel in the Catskills, with the balance being primarily build-to-suit development of golf entertainment complexes and attractions.
During the quarter, we received approximately $95 million in proceeds from Och-Ziff, representing payment in full on the remaining mortgage note receivable of $75 million and prepayment fees of approximately $20 million.
Our investment with Och-Ziff produced approximately $66 million of additional cash payments over and above the original $250 million of principal. This translates into an unlevered IRR in excess of 30% and an implied cap rate of approximately 6.7%.
We are, of course, thrilled with these returns and our overall success in recycling capital this year.
Turning to industry updates, the operators in our attractions portfolio have delivered solid results this season with visits and revenue through August up approximately 1% and 3% respectively versus the prior year.
At quarter-end, our Education portfolio included over $1.4 billion of total investments with three properties under development, 146 properties in service, and 60 operators. Our occupancy was 98% and our rent coverage was 1.49 times.
Investment spending in our Education segment totaled approximately $32 million, primarily consisting of $9.3 million of early childhood education acquisitions, with the balance being primarily build-to-suit development and redevelopment of public charter schools and early childhood education centers.
As discussed on our last call, in July, we sold five charter school properties for total net proceeds of approximately $55.4 million. Four of these five properties were leased to Imagine Schools under a direct financing lease and produced net proceeds of approximately $43.4 million, which produced a $5.5 million GAAP basis gain and a $12 million gain versus our original cost.
This transaction had a cash cap rate of approximately 9% and a GAAP cap rate of approximately 10% due to the additional non-cash direct financing income from these leases.
As we also discussed on our last call, in July, we entered into an agreement with CLA related to 21 open schools, which replaced the prior leases with a one-month lease for the month of August for rent of $1 million.
Since progress has been made towards CLA's ultimate restructuring, we've extended the lease through the end of October. CLA made rent payments of $1 million per month in August, September and October.
We have not included any additional payments under this new lease in the midpoint of our earnings guidance. If the new lease is not extended or CLA does not meet its obligations under the lease, CLA will be required to expeditiously vacate the remaining properties, in which case we intend to lease some or all of the 21 schools to other identified operators. We anticipate a resolution to the CLA issue by our year-end earnings call.
Moving to our investment spending guidance, we are tightening our range to $500 million to $600 million from our previous range of $450 million to $650 million.
We are also confirming our disposition guidance range of $450 million to $500 million. As previously stated, our year-to-date disposition proceeds are approximately $400 million.
With that, I'll turn it over to Mark for a discussion of the financials.
Thank you, Greg. I’d like to remind everyone on the call that our quarterly investor supplemental can be downloaded from our website.
Now, turning to the first slide, net income for the third quarter was $85.8 million or $1.15 per share compared to $57 million or $0.77 per share in the prior-year.
FFO was $116.5 million compared to $90.5 million in the prior-year. FFO as adjusted for the quarter increased to $119.6 million versus $93.3 million in the prior-year and was $1.58 per share versus $1.26 per share in the prior-year, an increase of over 25%.
I’d like to point out that the results for this quarter include the $20 million in prepayment fees or $0.26 per diluted share related to the $75 million payoff of the Och-Ziff mortgage note that Greg mentioned.
We also had one adjustment to FFO to come to FFO as adjusted that I would like to discuss. As I mentioned on the prior call, in July, we sold one public charter school pursuant to a tenant purchase option for total proceeds of $12 million. And as a result, we recognized a termination fee of $1.9 million in FFO as adjusted versus $1 million of such fees in the prior-year.
Now, let me walk through the key line item variances for the quarter versus the prior year. Our total revenue increased 17% compared to the prior year to $176.4 million.
Within the revenue category, rental revenue increased by $14.3 million versus the prior year to $140.9 million. This increase resulted primarily from rental revenue related to new investments as well as Endeavor Schools’ exercise of the right to convert their $143 million mortgage note into a master lease arrangement during the first quarter of 2018.
Note that we recognized $3 million in rental revenue related to Children's Learning Adventure during the quarter related to the required payments out of the monthly lease agreement. This represented an increase of $1 million versus the prior year.
Tenant reimbursements included in rental revenue were $3.7 million for both the current quarter and the prior year. Additionally, percentage rents for the quarter, also included in rental revenue, increased to $2.7 million versus $2.2 million in the prior year. The increase of $0.5 million is due primarily to the strong theater box office performance as well as additional percentage rents related to private schools.
Mortgage and other financing income was $35.1 million for the quarter, an increase of approximately $10.8 million versus the prior year. The increase resulted primarily from the $20 million in prepayment fees related to the Och-Ziff payoff I discussed earlier.
This increase was partially offset primarily by the impact of Endeavor Schools’ lease conversions, as I mentioned earlier, and the sale of four Imagine Schools in July that were classified as investment in direct financing leases.
On the expense side, our property operating expense increased by approximately $600,000 versus the prior-year due to higher property operating expenses at our multitenant properties.
G&A expense decreased to $11.4 million for the quarter compared to $12.1 million in the prior-year, primarily due to a decrease in our professional fees, in part due to settlement during the second quarter of our litigation with the Cappelli Group.
During the quarter, we completed the sale of four public charter schools leased to Imagine for net proceeds of $43.4 million and recognized a gain on sale of investment in direct financing leases of $5.5 million during the quarter that has been excluded from FFO and FFO as adjusted.
Our carrying value on these properties at the time of sale was $37.9 million and our original acquisition cost was $31.6 million. Our gain over our initial investment in these schools was nearly $12 million.
Turning to the next slide, for the nine months ended September 30, our total revenue was up 25% and our FFO as adjusted per share was up 26% to $4.70, including $65.9 million or $0.86 per diluted share in prepayment fees received from Och-Ziff.
I also want to note that if you remove all prepayment and termination fees from both year-to-date numbers, our FFO as adjusted per share growth was approximately 5%.
Turning to the next slide, I will review some of the company's key credit ratios. As you can see, our coverage ratios continue to be strong and improving with fixed charge coverage at 3.3 times, debt service coverage at 3.8 times, interest coverage at 3.8 times and, at quarter-end, our debt-to-adjusted EBITDA ratio was down to 5.3 times. Note that each of these ratios exclude all prepayment and termination fees.
Our net debt to gross assets was slightly under 42% on a book basis and 35% on a market basis.
Now, I’ll turn to the next slide for a capital markets and liquidity update. At quarter-end, we had total outstanding debt of $3 billion, of which $2.9 billion is either fixed-rate debt or debt that has been fixed through interest-rate swaps with a blended coupon of approximately 4.6%.
We had no balance at quarter-end on our $1 billion line of credit and $74.2 million of unrestricted cash on hand. We are pleased to have a weighted average debt maturity of approximately 7 years and no debt maturities until 2022, which is a great position to be in given the potential of rising interest rates.
During the quarter, we settled two expiring foreign currency agreements with a combined notional amount of $200 million and received a cash payment of $30.8 million in connection with the settlement.
This significant gain will be recorded in accumulated other comprehensive income and reclassified into earnings upon the sale or liquidation of our properties in Canada.
These derivatives were replaced with two new cross currency swaps of the same amount that will continue to hedge our net investment in our Canadian assets through June of 2023.
Turning to the next slide, we are pleased to announce that we’re increasing our guidance for 2018 FFO as adjusted per share to a range of $6.03 to $6.09 from a range of $5.97 to $6.07.
We’re also mirroring narrowing our guidance for investment spending to a range of $500 million to $600 million from a range of $450 million to $650 million and confirming our disposition proceeds range of $450 million to $500 million.
Note that our plan laid out at the beginning of the year to primarily use disposition proceeds and free cash flow to fund new investments has been working very well, such that our guidance does not anticipate any new capital over the remainder of 2018 and we expect to finish the year with all or substantially all of our $1 billion line of credit available. This should put us in great shape from a liquidity perspective as we enter 2019. Guidance for 2018 is detailed on page 30 of our supplemental.
Turning to the next slide, I thought it’d be helpful to again provide a roadmap from the previous midpoint of FFO as adjusted per share guidance to the current midpoint.
Starting with the previous midpoint of $6.02, the increase in prepayment fees from Och-Ziff of $0.06 is offset by lower expected termination fees related to our education properties of the same amount.
We then had $0.03 per share related to the additional CLA rent payments received for September and October that were not in our previous guidance and had a penny for additional expected percentage rents.
These changes moved the midpoint of our guidance up by $0.06 to $6.06 per diluted share. The lower termination fees on education property is due partially to the timing of when tenants plan to exercise their purchase options, as well as tenants that have decided not to exercise such options, both of which are difficult to predict within a narrow time band.
Finally, as is the most common practice among our peer group, we will be introducing 2019 guidance on our February 2019 call rather than on this call.
This practice provides us better visibility as to our anticipated results for the coming year; and as a result, we believe it provides better quality earnings guidance for our investors.
I do, however, want to make a few points about the new lease accounting standard that will be effective on January 1, 2019. First, we have never capitalized internal leasing costs or any costs associated with lease renewals or modifications, so the change to expense such costs going forward per the new standard will have no effect on our net income or FFO results.
Second, we do expect to book our right of use asset and corresponding lease liability for certain operating ground leases and other arrangements for which we are the lessee, which we estimate to be less than 4% of total assets at the date of adoption based on current information.
Also, because in substantially all cases the ground lease costs are passed on to our tenants, we will begin recording such amounts as both rental revenue and property operating expense going forward.
In addition, certain other costs paid directly by our tenants, such as property taxes, may require a similar gross up of revenue and expense in future income statements, again, with no expected net impact.
We will update you on these and other impacts of the new standard in our year-end call.
Now, with that, I’ll turn it back over to Greg for his closing remarks.
Thank you, Mark. While we’re pleased with our third quarter execution, we know there remains work to be done to achieve our objectives for the year and we’re committed to those objectives.
In conclusion, our tenant industries are demonstrating their durability and strength, we have substantially executed on our capital recycling plan with outstanding results and we have positioned our balance sheet for future growth. We believe we are well-positioned.
With that, let me open it up for questions. Ashley?
Thank you. [Operator Instructions]. And your first question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your line is now open.
Hey, good morning, guys. Just wanted to clarify. So, guidance has $0.03 of additional upside just from CLA, correct?
Correct.
Okay. And you guys are saying in the press release that you guys can backfill pretty quickly. Do you have LOIs on any of the 21 assets right now that would slate in pretty quick or just give us an update on progress?
Sure. What we’ve said is we actually – if you remember, as part of our August agreement, we got the right to share the performance information with other operators. We put six to eight different operators under NDA, have been part of that process and we’re narrowing that down. So, we think we have good options with regard to the other operators. However, the current operator has got a restructuring alternative as well and we’re trying to go to on a path that maximizes not only our value, but also is least disruptive to the properties. So, we feel that we have solid alternatives for us to replace that. We have operators that are willing to take all of our 21 properties. So, we feel like we’re in a position. We’re just now into that execution phase and whether or not we have to take those back or whether or not we’re able to just transition those.
Okay. You guys are going through this process, is their core business still intact? Like, is enrollment still good? Expenses kind of – can they still run the business that they come out of this process with, either lower rent load from landlords or can you talk about that at all?
Sure. I could talk to you about hours. So, I get you want a comment on their others. But our properties have been and had performed very solidly. As you can see in the overall kind of coverage metrics that we talk about, they have performed. And in fact, some of them are continuing to improve. So, we feel very good about our properties and the underwriting that we did on their performance. So, I think those properties are well-positioned to be successful. As I said, it's probably improper for me to comment on properties that are owned by others.
That's fair. And then, just on Och-Ziff, the extra $5 million, what kind of happened there from the $15 million guidance you gave to the $20 you received? Was it all contractual, the timing or…?
There's a bit of timing because the earlier they prepay it, the higher the penalty. So, that’s it. And then, we’re probably a little bit conservative in that estimate as well.
Okay. And then, just last one for me, as I look at your loan maturities next year, can you remind us what the $176 million one is that expires in May and kind of what the expectation is there for repayment and opportunities to roll that forward?
Sure. That's the Schlitterbahn note. So, again, we’ll take a look at that. We've historically had a history of rolling that. I can't tell you right now kind of where we will be exactly on that. But what I can tell you of their performance is that they’ve fully funded all the reserves. So, we’re fully funded up. So, we will probably be talking with them in the near future about kind of what they want to do.
Okay. I know it's a 7% and 10%. What’s the blended on the full balance?
It probably blends to a low 8.
Okay. Great. Thanks, guys.
Thank you.
Thank you. And our next question comes from the line of Nick Joseph with Citi. Your line is now open.
Thanks. Just wanted to follow-up on CLA. With the extension ending tomorrow, is the plan to extend them again month-to-month or could there be a resolution or at least a position on the resolution over the next few days?
Again, I think, Nick, what we’re doing is every one of those are kind of a little bit of a negotiation, a part of the bigger picture. Some of the operators that we’re looking at are wanting to look at stores other than our own. So, they're trying to get a view beyond just the 21 that we have. So, there's some negotiation going on to expand that. And we will see how that works out. But, again, right now, we’re in active discussions with them.
Thanks. And how do you think about what the right rent level is for those 21 assets? If you look, they're right now marked around $250 million to $1 million. You're looking at about 4.8% current yield. What do you think market rent is for those? And if they were to be re-tenanted, would there be downtime for your rent? Any CapEx required?
Again, if you look at that historically, that product type is kind of a low to mid 7s type cap rate. We don't think there’ll be CapEx. Whether there’s downtime will really be dependent upon the transition. And if we transition these as operating properties to new operators versus real estate to new operators and where there's a ramp up period, and those are part of kind of the ongoing negotiations, Nick.
Thanks. And just so I may understand changing the guidance issuance to 4Q, but just thinking ahead, are there any expected prepayment or termination fees that we should be thinking about for 2019?
There's nothing like an Och-Ziff. We should be back more to our kind of school track. There's no large transactions like we had structured with Och-Ziff in there.
Is this similar to this year excluding Och-Ziff?
Yeah.
Great, thank you.
Thank you. And our next question comes from the line of Collin Mings with Raymond James. Your line is now open.
Hey, good morning, everybody.
Good morning, Collin.
To start, just recognizing you are providing formal guidance, but can you just maybe talk a little bit more about the deal pipeline you're building, just especially given your improved cost of capital? That’s something you touched on a little bit on the last call.
And then, maybe just within your different categories, where are you seeing the most opportunities either in terms of build-to-suit or acquisitions?
I think what we would say is, Collin, is that we would think 2019 would be kind of a return to our kind of a normal what we have established over the last couple of years excluding the large CNL transaction. So, I think what we would think is it's kind of a return to the norm.
As far as where the opportunity is, I would say right now they're probably in our Entertainment and Recreation. There’s probably more. As we continue to talk about the power of the experiential assets, we’re seeing a lot of focus there and a lot of tenants tapping into those markets. So, Education being more of the steady, but the growth being in those two areas.
Okay. And then, maybe just along those lines, you’ve touched on some areas of future growth within kind of the targeted categories of – areas that maybe you historically haven't trafficked in. Any sort of updates or thoughts there, any particular categories, if you will, that you're focused in on right now?
I think what we’ll do – and, again, it’s within the larger framework of what we call that – those experiential groupings of Recreation and Entertainment, but I think we’ll probably – we’ll deal with that. You've seen some things that we’ve done here recently with the recreational lodging. We’re seeing a lot of opportunities in that. But that's probably best for our fourth-quarter call when we’re ready to roll out formal guidance.
Fair enough. Just going back to the prepared remarks, just the downward pressure on termination fees on the education properties, you noted some of that was maybe driven by tenant election not to pursue some purchase options. Just anything specific driving that or any additional color you can provide on that move in guidance?
I think, for anything, as we’ve said before, a lot of these people are trying to exercise early. And I think with some of the rate movements, there's been some reconsideration for people because that just increases their prepayment penalty if they're going out earlier. So, that is what our understanding is. People are a little more sensitive there.
Okay, that’s helpful. I’ll turn it over. Thanks, guys.
Thank you. And our next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is now open.
Yeah, thanks. I guess, after Collin’s question on your investment pipeline, Greg, can you talk a little bit about where you're seeing the most activities in terms of your three segments? It seems like you kind of shied away from the entertainment investments here in the near-term. Is that because those are mostly build-to-suit type deals and those are building and they're going to come more in 2019?
Yeah. I think what is true – it’s a fair statement. As I said, I think 2019 will be more focused a little bit in the entertainment and recreation areas. But, remember, we started off 2018 slow and we’re worried about our cost of capital and where we would deploy. So, that pushes projects, whether they be redevelopment or new development out. So, we think that we’ll get back on a more traditional trajectory in those and feel like, especially after coming off of a really strong year and the performance of redeveloped theaters to the high amenities, they continue to perform outstandingly. So, I think we’ll see more focus – or a return to a focus on that in 2019, given our better cost of capital and our willingness of our operators to take advantage of that.
And let me talk a little bit about the education platform. Is there anything on the legislation side that's coming down over the next few months? And then also, why do you think that investment activity in that space is going to be a little slower as you move into 2019?
I'm not aware of any sort of legislative activity. And what I mean by slower, I meant on a relative basis compared to the other two. It is more of a steady flow business where the others are – got more momentum with a focus on experiential. So, I don't mean to say that that's where that business is still progressing. It's just that there's quite a bit of momentum right now in the experiential side.
Okay. Then with regard to CLA, can you talk a little bit about – I know it might be difficult – but how negotiations are going with those third-party capital providers? It seems like they've been in talks with potential capital providers for the past few quarters now? Is that a likely scenario? Or is it more likely that you're going to have to re-lease these facilities to a different operator?
Again, Michael, it's a very fair question. I just don't think we should be talking about their transaction on our call. We’re trying to advance the ball. We get evidence of progress by talking to people who are involved on that other side. But at each stage, I can assure you, we are making progress on our solution that we control and that, at each one of these months, we’re extracting something that is useful for us to drive our solution forward. But to talk about their side of the transaction, probably, I shouldn't be doing that on our call.
Yeah. No, understood. Understood. And then, how long are you willing to continue to do these month-on-month extensions? I guess, as soon as you are able to – you think you can re-lease these facilities to a different operator on a seamless basis, that's when you’ll stop those month-on-month transactions?
That’s a great, I think, indicator of what we’re trying to do, the seamless nature of that. But what we said was we think we’re going to have this resolved by our year-end call.
Okay, great. Thanks, Greg.
Thank you.
Thank you. [Operator Instructions]. And our next question comes from the line of Ki Bin Kim with SunTrust. Your line is now open.
Ki Bin Kim, if your line is on mute, please unmute it.
Sorry about that. This is Alexie [ph] filling in for Ki Bin this morning. Two quick questions. First one regarding CLA and the $3 million of rent recognized this quarter, does that include the $1 million of October rent or is that going to flow through your fourth quarter income statement?
The October rent will flow through the fourth quarter, but both amounts are in our guidance for the year. The October rent – yeah, we're booking it on a as-received basis.
Okay. Makes sense. And then, in terms of rent coverage, you had quite a big jump in the entertainment segment from last quarter. Is that mostly percentage rents or is there something else that drove that?
Well, percentage rent wouldn't drive coverage. It's actually underlying performance. I think it's – like we've said, it's been a very good box office year so far year-to-date. Also, what we've seen across the board is increases per cap spending in the concessions. So, overall, generally, it feeds itself, in that when you have a better box office year, you have higher concession spending, which – I think what we would tell you is we talk about a 1.6 to 1.8 [ph] is the bandwidth of our coverage. And I think, by the end of the year, we'll probably be right around that bandwidth. So, I think this is really just kind of taking off what was a less-than-stellar second quarter out of the trailing 12 and having a better one in this year.
Okay. Thank you
Thank you. And our next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is now open.
Good morning.
Good morning, John.
So, kind of looking at maybe the near-term investment spending, you're about $145 million out from the low-end of 2018 guidance. If you look at kind of page 20 of the supp and your own build-to-suit spending and the mortgage build-to-suit spending estimates, that's about a little under $60 million. Is the delta there going to be your acquisitions that you potentially see out there in the market to close or is that kind of maybe spur-of-the-moment build-to-suit spending you historically get from like entertainment tenants?
It will be both, but it won't be spur of the moment kind of. There are no kind of spur of the moment. It can be be build-to-suits that start, but, likewise, it's pretty straightforward that there would be more acquisition than traditional in that fourth quarter to be comfortable with our numbers.
Understood. And then, kind of going back to the guidance a little bit, was there any lost kind of interest income in the current guidance versus the prior guidance, given the maybe earlier prepayment than was originally expected? And where's that flowing through? Is that just netted out against the prepayment income?
No, it's not netted out. It would be reflected in lower mortgage financing income, but we had the school timing. Across the rest of portfolio, in terms of what went into service, there was kind of an offset there. So, it didn't make its way to the overall guidance reconciliation. That was a decrease in interest income by them exercising earlier than we had anticipated, but that was offset by other timing.
Okay. So, basically, the fact that education had more interest income than expected can offset, right?
Yeah.
And then, maybe lastly, can you provide some color on the Early Education properties you acquired in the quarter? What are those? Are those maybe more high-finish assets? Or CLA or are those kind of smaller, lower-cost boxes?
I would say they are smaller, lower cost boxes, more traditional early adds than CLA.
And is that kind of the way, maybe Early Education investments will be on a go-forward basis? That's more of a focus versus some of the bigger-box players out there, even beyond CLA?
I think that's fair.
Okay. That's it for me. Thank you guys very much.
Thank you.
Thank you.
Thank you. And our next question comes from the line of Tony Paolone with J.P. Morgan. Your line is now open.
Thanks. Good morning.
Good morning, Tony.
Just a question on the Catskills deal. I'm looking at page 20. What piece of the $371 million of recreation build-to-suits is the Catskills going to be, if you could remind us on that?
It will be a little over $200 million.
All in.
All in.
Okay. And can you just talk about just what the expected the timing of that is to be wrapped up in the open [indiscernible].
Yeah. Again, all of those things – it should be the spring of 2019. So, that's kind of the expectation. As far as the yield, I think we'll put that into our guidance as we go forward, Tony, without speaking on one particular asset.
Okay. I am just curious if anything has just changed or the outlook for that? Certainly, the casinos have opened or the casino opened, I think, on the slower side, but I don't know if that's because your project is not kind of up and running yet or just where everything stands with that whole region right now?
Yeah. Again, I think if you talk to the operators, I don't feel they think there's a connection to the casino. I know the casino has performed somewhat less than the operator had anticipated, but I think our operator feels that that's a more family-oriented product and really see that tapping into the upper – the northern half of kind of Manhattan and New York for their destination. But I think if people get a chance to go out and look, it's a beautiful project and I think it will be a real asset for us and for people looking for recreation and entertainment in and around New York.
Okay, great. And then, just on the Topgolf, that was one of your bigger spends in the quarter, is that still under the original program where you were getting some outsized yields at this point or the Topgolf deal is more market deals?
They are probably – we are outside of our deal. So, these are a little more market, but they were sites that we had done work on as far as determining what would be in our final group. So, I think we're doing well with those. We're probably in the low to mid-8s on these. But against our overall portfolio, we felt these were really strong locations that would perform. So, we've gone ahead and added those to our portfolio.
Okay. Got it. That's all I have. Thanks.
Thanks, Tony.
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to management for any closing remarks.
Well, again, I really and we really appreciate your time and attention and we look forward to talking to you in February. And everyone, have a very safe and happy Halloween.
Thank you.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.