UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year (six weeks) ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to
_______________.
COMMISSION FILE NUMBER 1-13561
ENTERTAINMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 43-179877
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE KANSAS CITY PLACE
1200 MAIN STREET, SUITE 3250, KANSAS CITY, MISSOURI 64105
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (816) 472-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of each exchange on which registered
Common Shares of Beneficial Interest, New York Stock Exchange
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS
(OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO
FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS
PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE,
IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE COMMON SHARES OF BENEFICIAL
INTEREST OF THE REGISTRANT HELD BY NON-AFFILIATES ON MARCH 17,
1998, WAS $264,054,125 (BASED ON THE CLOSING PRICE PER SHARE AS
QUOTED ON THE NEW YORK STOCK EXCHANGE ON MARCH 17, 1998). AT
MARCH 17, 1998, THERE WERE 13,860,100 COMMON SHARES OF BENEFICIAL
INTEREST OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A are incorporated by reference in Part III of
this Form 10-K.
Part I
ITEM 1. BUSINESS
GENERAL
Entertainment Properties Trust (the "Company") was formed on
August 22, 1997 as a Maryland real estate investment trust
("REIT") to capitalize on the opportunities created by the
development of destination entertainment and entertainment-
related properties, including megaplex movie theatre complexes.
The Company completed an initial public offering ("IPO") of its
common shares of beneficial interest ("Shares") on November 18,
1997.
The Company believes entertainment is emerging as an important
and discrete sector of the retail real estate industry and, as a
result of the Company's focus on properties in this sector and
the industry relationships of its management, believes it will
have a competitive advantage in providing capital to operators of
such properties. The principal business strategy of the Company
is to acquire a portfolio of high-quality properties leased to
entertainment and entertainment-related business operators,
generally under long-term triple net leases that require the
tenant to pay substantially all expenses associated with the
operation of the property. The Company's initial focus is
primarily on megaplex theatre complexes and entertainment themed
retail centers ("ETRC's").
Megaplex theatres typically have at least 14 screens with
predominantly stadium-style seating (seating with an elevation
between rows to provide unobstructed viewing) and are generally
equipped with amenities that significantly enhance the audio and
visual experience of the patron. The Company believes the
development of megaplex theatres has accelerated the obsolescence
of many existing movie theatres by setting new standards for
moviegoers, who, in the Company's experience, have demonstrated
their preference for the more attractive surroundings, wider
variety of films, better customer service and more comfortable
seating typical of megaplex theatres. As a result of the
significant capital commitment involved in building such
properties and the experience and industry relationships of the
Company's management, the Company believes it will have
opportunities to provide capital to businesses that seek to
develop and operate such properties but would prefer to lease
rather than own the properties. The Company believes its ability
to finance such properties will enable it to grow and diversify
its asset base.
The Company has acquired an initial portfolio of thirteen
megaplex theatre properties (the "Properties") from subsidiaries
of AMC Entertainment Inc. ("AMCE"), including American Multi-
Cinema, Inc. ("AMC"), for an aggregate purchase price of
approximately $274 million. Eleven of the Properties were
acquired in 1997 and two Properties were acquired in the first
quarter of 1998. Twelve of the Properties were described in the
Company's IPO Prospectus as the "Initial Properties" to be
acquired by the Company, and one Property was among the "Option
Properties" described in the Prospectus. The Properties have an
aggregate of 312 screens and 60,820 seats. Each Property is
located in a large metropolitan market and has been constructed
since May 1995. Four of the Company's Properties were among the
forty highest grossing theatres in the United States in 1997.
Each of the Company's existing Properties has been leased to AMC,
which is operating each Property as a megaplex theatre complex.
The Company's existing leases with AMC (the "Leases") provide for
aggregate annual rentals of approximately $28.8 million, or an
average annual rental of approximately $2.2 million per Property.
Each Lease has an initial term of 13 to 15 years, with AMC
obligated to operate the Property as a movie theatre for not less
than 10 years. Each Lease is a "triple-net" lease, under which
AMC is required to pay substantially all expenses associated with
the operation and maintenance of such Property.
AMC's performance under each Lease has been guaranteed by AMCE,
the parent of AMC.
The Company has the option to purchase four additional megaplex
theatre properties (the remaining "Option Properties") from AMCE
and its affiliates for a purchase price equal to the cost to AMCE
of developing and constructing such properties (estimated to
aggregate approximately $138 million if all the remaining Option
Properties are purchased). The remaining Option Properties have
an aggregate of 134 screens and approximately 27,830 seats and
are currently under construction, with the last theatre expected
to be completed and opened by October 1998. The Option
Properties, when and if acquired by the Company, will be leased
to AMC on a triple-net basis on terms similar to the Company's
existing Leases with AMC. AMC's performance under each Option
Property lease will be guaranteed by AMCE.
A more detailed description of the Company's existing portfolio
of Properties, the Option Properties and the terms of the
Company's Leases with AMC appears in Item 2 of this Form 10-K.
The Company's existing Properties and the remaining Option
Properties represent all of the AMCE-owned (or ground-leased)
megaplex theatres in existence or currently under construction,
with the exception of certain properties that are not readily
transferable to the Company.
AMCE is one of the leading theatrical exhibition companies in
North America measured by revenues, and is an industry leader in
the development of megaplex theatre complexes. In the fiscal
year ended April 3, 1997, AMCE's consolidated revenues were
$749,597,000. As of October 2, 1997, AMCE, through its
subsidiaries, operated 222 theatres with an aggregate of 2,048
screens located in 22 states, the District of Columbia, Portugal
and Japan. Approximately 63% of the screens operated by AMCE are
located in Florida, California, Texas, Missouri and Michigan and
approximately 73% of AMCE's domestic screens are located in areas
among the 20 largest U.S. "Areas of Dominant Influence"
(television markets as defined by Arbitron Company).
For a period of five years following the closing of the IPO, the
Company will have a right of first refusal and first offer to
purchase and lease back to AMC any megaplex theatre and related
entertainment property acquired or developed and owned (or
ground-leased) by AMCE or its subsidiaries, exercisable upon
AMCE's intended disposition of the property. This right to
purchase is intended to give the Company access to new projects
developed by AMCE and its subsidiaries, thereby providing
opportunities for future growth, although AMCE may lease
entertainment and entertainment-related properties from owners
other than the Company.
In addition to the substantial growth potential and predictable
revenue stream offered by the Company's relationship with AMC,
the Company believes there will be opportunities to acquire high
quality entertainment and entertainment-themed properties from
operators other than AMC. See "Markets and Competition," this
Item.
As a real estate investment trust, the Company intends primarily
to lease its properties to tenants on a triple-net basis and does
not intend to operate its properties. Accordingly, the Company
intends that its tenants, and not the Company, will assume the
primary operating risks involved in the operation of its
properties. The Company's existing Leases with AMC provide (and
it is intended that future leases with AMC and other operators
will provide) for constant rental payments with periodic
escalators, together with an obligation to pay percentage rentals
based on gross receipts at such time as certain baseline revenues
are achieved by the tenant.
The Company has obtained a $200 million unsecured line of credit
from a syndicate of banks (the "Bank Credit Facility"), which has
been used in part to acquire one of the Properties, with the
remaining funds to be used primarily for the acquisition of
additional entertainment and entertainment-related properties
(including the remaining Option Properties) and general corporate
purposes. See"Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of this Form 10-K.
BUSINESS OBJECTIVES AND STRATEGIES
The Company's business objectives are to achieve predictable and
increasing Funds from Operations ("FFO") per Share (defined as
net income plus depreciation divided by the number of Shares
outstanding) and enhance shareholder value by acquiring and
developing a diversified portfolio of high-quality properties
leased to entertainment and entertainment-related business
operators, generally under long-term triple net leases. The
Company intends to achieve these objectives through
implementation of the Growth Strategies, Operating Strategies and
Capitalization Strategies described below:
GROWTH STRATEGIES
. Acquire the remaining Option Properties and lease-back such
Properties to AMC.
. Purchase additional AMC-operated properties pursuant to a
Right of First Refusal and First Offer to Purchase Agreement
between the Company and AMCE (the "AMCE Right to Purchase
Agreement").
. Develop or acquire additional megaplex theatre properties
and lease such properties to other qualified theatrical
exhibitors.
. Develop or acquire, and lease to qualified operators or
master tenants, entertainment themed retail centers
("ETRCs") and single-tenant out-of-home location based
entertainment and entertainment-related properties.
OPTION PROPERTIES. The Company has the option to acquire up
to four additional megaplex theatres currently under
construction by AMC (the "Option Properties") for an
aggregate estimated purchase price of approximately $138
million. The Option Properties are expected to be completed
between April 1998 and October 1998. It is intended that
the acquisition of the Option Properties and any related
land parcels will be funded by the Bank Credit Facility.
The Company intends to lease the Option Properties to AMC
pursuant to leases that provide for annual base rent
escalation and, if revenues exceed the baseline amounts,
annual percentage rent.
FUTURE AMCE PROPERTIES. Pursuant to the AMCE Right to
Purchase Agreement, the Company has the right of first
refusal and first offer to acquire and lease back to AMC any
megaplex theatre and related entertainment property acquired
or developed and owned (or ground-leased) by AMCE or its
subsidiaries, exercisable for a period of five years
following the closing of the IPO, upon AMCE's intended
disposition of the property. The Company expects that AMCE
and its subsidiaries will continue to acquire and/or develop
and own such properties, although AMCE will be free to lease
entertainment and entertainment-related properties from
owners other than the Company.
OTHER MEGAPLEX PROPERTIES. In addition to the anticipated
future growth in properties developed by AMCE, the Company
believes additional megaplex theatres will be developed by
other operators. The Company intends to pursue
opportunities to acquire high-quality properties from other
operators with a strong market presence and believes it will
have opportunities to purchase megaplex theatres developed
by such operators. See "Markets and Competition," this
Item.
ENTERTAINMENT THEMED RETAIL CENTERS. The Company intends to
pursue opportunities to acquire ETRCs, which are generally
large multi-tenant retail developments that incorporate such
elements as megaplex theatres, restaurants, book and/or
music superstores, interactive entertainment venues and
other specialty retail that is oriented to entertainment or
leisure-time activities. The Company believes the most
important component of an ETRC is a megaplex theatre due to
its ability to generate substantial customer traffic to the
site. Such centers typically attempt to provide a family
entertainment experience by creating an atmosphere of fun
and excitement. The Company believes ETRCs broaden the
traditional retail shopping concept and attract a greater
number of customers to spend more time and money at a single
location. The Company also believes access to capital in
this developing market is generally limited for operators
other than the largest entertainment companies. As a result
of the significant capital commitment involved in building
such properties and the experience and relationships of the
Company's management, the Company believes it will have
opportunities to provide capital to businesses that seek to
develop and operate such properties but would rather lease
than own the properties. The Company's ability to finance
the acquisition and development of such properties should
enable it to grow and diversify its asset base.
The Company believes it will have opportunities to provide
capital to developers and operators of entertainment and
entertainment-related properties due to its strong capital base
of shareholders' equity, the funds available under its Bank
Credit Facility and its potential access to capital markets. The
Company also believes it should be in a position to acquire new
properties for cash, Shares or a combination thereof, creating
the opportunity for transactions structured on a tax-deferred
basis to the seller (through a subsidiary partnership or
otherwise) and thereby potentially reducing the price that would
be paid in all-cash transactions.
OPERATING STRATEGIES
. Purchase single-tenant properties supported by long-term
leases or multi-tenant properties that are substantially
leased to minimize the risks inherent in initial leasing.
. Structure leases, where possible, on a triple net or similar
basis under which the tenants bear the principal financial
and operational risks of the properties.
. Provide in the leases for contractual increases in rent
and/or percentage rent based upon a percentage of a tenant's
gross sales over a pre-determined level.
. Develop and maintain long-term working relationships with
theatre, restaurant, retail and other entertainment-related
business operators.
. Diversify the Company's asset base by property type and
tenant.
LEASE RISK MINIMIZATION. To avoid initial lease-up risks
and produce a predictable income stream, the Company intends
to acquire single-tenant properties that are leased under
long-term leases or multi-tenant properties that are
substantially leased. The Company's existing Properties
are, and the Option Properties (to the extent acquired) will
be leased to AMC with initial terms ranging from 13 to 15
years. The Company believes its willingness to make long-
term investments in properties offers tenants financial
flexibility and allows tenants to allocate capital to their
core businesses.
LEASE STRUCTURE. The Company intends to structure leases,
where possible, on a triple-net or similar basis under which
the tenants bear the principal portion of the financial and
operational responsibility for the properties. During each
lease term and any renewal periods, the Company intends to
provide for annual increases in rent and/or provide for
percentage rent based upon a percentage of the tenant's
gross sales over a pre-determined level.
TENANT RELATIONSHIPS. The Company will seek to develop and
maintain long-term working relationships with theatre,
restaurant and other entertainment-related business
operators (including AMC) by providing capital for multiple
properties on a national basis, thereby adding additional
efficiency and value to such operators and the Company. In
addition to AMC, the Company will target tenants whose
competitive position and financial strength are deemed
adequate to enable them to meet their obligations throughout
the lease terms.
PORTFOLIO DIVERSIFICATION. The Company will endeavor to
diversify its asset base by property type and tenant. In
pursuing this diversification strategy, the Company will
target theatre, restaurant, retail and other entertainment-
related business operators that management views as leaders
in their market segments and that have the financial
strength to compete effectively and perform under their
leases with the Company. As ETRCs include an increasing
number of diverse tenants, the Company expects it will be
able to serve the widening demands of this market and that
its portfolio will reflect these additional complementary
businesses.
CAPITALIZATION STRATEGIES
. Employ moderate leverage, pursuant to the Bank Credit
Facility or otherwise, to fund additional acquisitions.
. Maintain a debt to total market capitalization ratio of less
than 50%.
. Pay regular distributions and periodically increase
distributions as increases in FFO and Cash Available for
Distribution (net earnings plus depreciation and
amortization minus capital expenditures and principal
payments on indebtedness) are experienced.
MODERATE USE OF LEVERAGE; DEBT TO TOTAL MARKET
CAPITALIZATION. The Company will seek to enhance
shareholder return through the moderate use of leverage.
The Company intends to use the $200 million Bank Credit
Facility to fund the acquisition of the remaining Option
Properties, related land parcels and additional properties
consistent with the Company's investment policies. In
addition, the Company may in the future obtain secured debt
and/or refinance its existing debt with long-term debt or
the issuance of additional equity as circumstances warrant.
The Company expects to maintain a debt to total market
capitalization ratio (i.e., total debt of the Company as a
percentage of equity market value plus total debt) of less
than 50%.
PAYMENT OF REGULAR DISTRIBUTIONS. The Company has paid and
intends to continue paying quarterly distributions to its
shareholders. Among the factors the Board of Trustees will
consider in setting the distribution rate will be the
Company's results of operations, including FFO per Share,
and the Company's Cash Available for Distribution. The
Company expects to periodically increase distributions as
FFO and Cash Available for Distribution increase and as
other considerations and factors warrant.
There can be no assurance the foregoing objectives will be
achieved. See "Cautionary Statement Regarding Forward-Looking
Information" in Item 7 of this Form 10-K.
MARKETS AND COMPETITION
The Company competes for real estate financing opportunities
with traditional financial sources such as banks, non-bank
providers of leveraged lease and other structured finance
facilities, equity markets and insurance companies, as well as
other REIT's. The popularity of REIT's as real estate financing
vehicles, and thus the competition for high quality acquisition
opportunities, has increased in recent years and is expected to
continue to do so in the foreseeable future. While the Company
was the first publicly traded REIT formed to specialize in
entertainment-themed properties, other entertainment-oriented
REIT's may enter the market in the future as new megaplex
theatres and ETRC's are developed. The Company believes its
capital base, access to financing and the industry relationships
of its management will enable the Company to compete effectively
for acquisition and financing opportunities.
EMPLOYEES
The Company has six employees, including four executive and
two administrative employees.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
ITEM 2. PROPERTIES
Since November 18, 1997, the effective date of the IPO, the
Company has acquired 13 megaplex theatre Properties from AMC or
its affiliates.
The following table lists the Company's Properties, their
locations, acquisition dates, number of theatre screens, number
of seats, gross square footage, acquisition cost, annual rents
and, where applicable, their national ranking in terms of ticket
revenues:
Building Annual
Acquisition (gross Cost Rent Industry
Property Location Date Screens Seats sq. ft) $000 $000 Ranking/1/
Grand 24 /2/ Dallas, TX 11/97 24 5,067 98,175 18,600 1,953 6
Mission
Valley 20/3/ San Diego, CA 11/97 20 4,361 84,352 16,300 1,711 4
Promenade 16 /2/ Los Angeles, CA 11/97 16 2,860 129,822 28,500 2,992 37
Ontario
Mills 30 /2/ Los Angeles, CA 11/97 30 5,469 131,534 25,300 2,656 12
Lennox 24 /2/ Columbus, OH 11/97 24 4,412 98,261 12,900 1,354 10
West Olive 16 /2/ St. Louis, MO 11/97 16 2,817 60,418 17,800 1,869 N/A
Studio 30 /2/ Houston, TX 11/97 30 6,032 136,154 26,400 2,772 N/A
Huebner Oaks 24 /2/ San Antonio, TX 11/97 24 4,400 96,004 16,900 1,774 N/A
First Colony 24 /3/ Houston, TX 12/97 24 5,098 107,690 19,100 2,005 N/A
Oakview 24 /3/ Omaha, NE 12/97 24 5,098 107,402 16,700 1,753 N/A
Leawood Town
Center 20/2//4/ Kansas City, MO 12/97 20 2,995 75,224 15,800 1,659 N/A
Gulf
Pointe 30/2//5/ Houston, TX 02/98 30 6,008 130,891 25,800 2,709 N/A
South
Barrington
30/2//6/ Chicago, IL 03/98 30 6,210 130,891 34,500 3,622 N/A
TOTAL 312 60,827 1,386,818 $274,600 $28,829
/1/ Among United States theatres based on ticket revenues for the year ended December 31, 1997, according
to daily grosses collected from participating exhibitors and published to subscribers by Entertainment
Data Incorporated. No ranking is provided for theatres that were not operational during the entire
period.
/2/ Fee simple title acquired
/3/ Third party ground leased Property. Although the Company is the tenant under the ground leases and
has assumed responsibility for performing the obligations thereunder, pursuant to the Leases, AMC is
responsible for performing the Company's obligations under the ground leases.
/4/ The Leawood Town Center property is located in an affluent Kansas suburb of the Kansas City, Missouri
metropolitan area.
/5/ In addition to the theatre property itself, the Company has acquired three pad sites in front of the
theatre which the Company intends to ground lease or sell to restaurant or other entertainment themed
operators.
/6/ Held in the name of a wholly-owned subsidiary of the Company.
<TABLE\>
Each Property has been leased back to AMC in accordance with the
terms of a triple net Lease at the annual rental rate listed
above for each Property. See "Leases," this Item.
The Purchase Price for each Property was determined by the
management of both AMCE and the Company as the cost of developing
and constructing such Property.
The Lease payment obligations with respect to each Property were
determined by the management of AMCE and the Company and were not
negotiated on an arms-length basis. The Lease payments are based
on an initial capitalization rate of 10.5%, which the Company
believes reflects the fair market value of the Properties to the
Company based on rates for comparable triple net lease
transactions.
The Properties are operated by AMC as megaplex movie theatres
under the terms of each Lease.
THE OPTION PROPERTIES
Certain information regarding each of the remaining Option
Properties, including the purchase price payable by the Company
therefor, is set forth below. The Company acquired one Option
Property, Gulf Pointe 30 in Houston, Texas, in February 1998.
Estimated
Estimated Building Anticipated Purchase
No. of (gross Opening Price
Property Location Screens Seats sq. ft.) Date/1/ ($000)/2/
Cantera 30(4) Chicago, IL 30 6,210 130,757 4/98 34,400
Mesquite
30(3)(4) Dallas, TX 30 6,008 130,891 4/98 23,500
Hampton Town
Center 24(3) Norfolk, VA 24 5,098 107,396 4/98 26,100
Livonia 20 Detroit, MI 20 4,056 85,688 10/98 27,500
TOTAL 134 27,380 585,623 $138,500
/1/ If the Company acquires an Option Property, the Company will
pay the purchase price and AMC will commence paying rent
under the applicable lease on the date such Option Property
is acquired by the Company.
/2/ Purchase prices are estimated but are not expected to
materially change. The actual purchase price for each
Option Property will equal the cost to AMC of developing and
constructing such Property at the time of acquisition by the
Company.
/3/ AMC currently leases such properties from a third party
owner/lessor. The Company has an option to acquire such
properties from the owner/lessor. Such properties will be
acquired without representation or warranty by, or recourse
to, the owner/lessor, and the Company will be responsible
for all transaction costs.
/4/ The Company has the option to acquire the land parcels
adjacent to this theatre if such land parcels are not under
contract for sale or sold at the time of the related theatre
acquisition.
FUTURE AMCE PROPERTIES
It is anticipated that AMCE or its subsidiaries will acquire or
develop additional entertainment or entertainment-related
properties in the future. The Company and AMCE have entered into
the AMCE Right to Purchase Agreement, pursuant to which the
Company has a right of first refusal and first offer to acquire
and lease back to AMC any megaplex theatre and related
entertainment property acquired or developed and owned (or
ground- leased) by AMCE or its subsidiaries, exercisable for a
period of five years following the date of the IPO, upon AMCE's
intended disposition of such property. The purchase price and
the initial annual rental rate on each property leased back to
AMC will be determined through the right of first refusal and
first offer process at the time of such acquisition and lease-back.
LEASES
Each of the Company's existing Properties has been leased-back to
AMC. AMC's obligations under each Lease are guaranteed by AMCE.
The Leases have initial terms ranging from 13 to 15 years (the
"Fixed Term") and may be extended upon the same terms and
conditions for four additional five-year terms (each, an
"Extended Term") at the option of AMC. The Leases are triple net
leases that require AMC to pay substantially all expenses
associated with the operation of the Properties, such as taxes
and other governmental charges, insurance, utilities, service,
maintenance and any ground lease payments. Each Lease requires
that, for a specified period, AMC must operate the Property only
as a movie theatre and for activities incidental thereto.
The rental schedules under the Leases are expected to provide for
a relatively stable source of cash flow and opportunities to
participate in any future growth in revenues experienced by AMC.
The rent for the first year under each Lease is initially set at
a fixed amount and is subject to increase each year by the annual
percentage increase in the Consumer Price Index ("CPI"), not to
exceed 2%, times the base rent applicable to that Property for
the preceding year (the "Base Rent Escalation"). In addition,
AMC is obligated to pay percentage rent on revenues in excess of
a baseline amount ("Annual Percentage Rent"). However, the
Company does not expect to receive any Annual Percentage Rent for
at least five years.
During each Fixed Term, certain obligations, including payment
obligations, of AMC under each Lease is cross-defaulted to each
of the other Leases until AMCE's senior debt obligations or
corporate credit rating are rated investment grade or AMC's
rental payments to the Company represent less than 50% of the
Company's rental income for any fiscal quarter. The Company has
general recourse to AMC under the Leases and to AMCE under its
guarantee of AMC's Lease obligations, but AMC's payment
obligations under the Leases and AMCE's obligations under its
guarantees are not secured by any assets of AMC or AMCE.
Following are narrative descriptions of each of the Company's
existing Properties. All references to national rankings in
theatre gross receipts are derived from information collected
from participating exhibitors and published to subscribers by
Entertainment Data Incorporated.
GRAND 24. The Grand 24 was the first megaplex theatre opened by
AMC in May 1995. It is a free-standing theatre located on a 21.2
acre site at 10110 Technology Boulevard East (in the Stemmons
Crossroads development, at the intersection of I-35 and Northwest
Highway) in Dallas, Texas. The theatre has 98,175 square feet
and 5,067 seats. The theatre site includes a 2,600-space free
parking area and tram service is provided to the theatre. Its
box office has 12 stations, and there are three concessions
stands with 21 total stations. Theatre amenities include stadium
AMC LoveSeat [Trademark] style seating, 46-inch spacing between
rows, SDDS [Trademark], TORUS [Trademark] Compound Curved
Screens, HITS [Trademark] and advance ticket purchase by
TeleTicket [Trademark]. Eight restaurants and clubs are located
near the theatre site. During 1997, the Grand 24 was the sixth
highest grossing theatre in the United States.
Based on the 1990 U.S. Census, there are approximately 460,000
people residing within seven miles of the Grand 24. The Grand 24
site is subject to standard and customary utility and other
easements, certain covenants and restrictions and certain
reciprocal easements regarding access and the construction of a
pedestrian bridge linking the Grand 24 site to adjoining
properties.
MISSION VALLEY 20. The Mission Valley 20 opened in December
1995. It is located in the Mission Valley Center shopping
complex, on Interstate 8 at the Mission Center Road exit in San
Diego, California. The ground lease is for 77,000 square feet,
and the theatre has 84,352 square feet and 4,361 seats. Free
parking for patrons is available throughout the shopping complex,
including under the theatre and on the south side of the shopping
center. The theatre box office has 15 stations, and there are
two concessions stands with 34 total stations. Other amenities
include stadium AMC LoveSeat [Trademark] style seating, 46-inch
spacing between rows, SDDS [Trademark], advance ticket purchase
by TeleTicket [Trademark], TORUS [Trademark] Compound Curved
Screens and HITS [Trademark]. During 1997, the Mission Valley 20
was the fourth highest grossing theatre in the United States.
The Mission Valley Center is a one-level outdoor mall with 1.3
million square feet on 48.1 acres. The Mission Valley Center
opened in 1961 with 100 shops, including the May Company and
Montgomery Wards Department Store. In 1975, the Mission Valley
Center expanded by adding Bullock's and 44,000 square feet of
specialty shops. In 1983, the Mission Valley Center also added
50 more specialty shops. Based on the 1990 U.S. Census, there
are approximately 490,000 people residing within five miles of
the Mission Valley 20. The ground-leased parcel for the Mission
Valley 20 site is subject to various reciprocal easements,
restrictions, covenants and other agreements for the operation of
the Mission Valley Center.
The Mission Valley 20 ground lease was entered into in 1994 and
has a 30-year initial term expiring in March 2024, with two, ten-
year extension options exercisable by the tenant. Minimum rent
is $10 per square foot ($764,850 per annum) through year 11 of
the lease, increasing by an amount equal to $2 per square foot in
year 12 and each five-year period thereafter to $18 per square
foot in year 27 of the ground lease. Minimum rent in the first
option period is $20 per square foot, and increases by an amount
equal to $2 per square foot at the commencement of each
successive option period. The ground lease also requires
percentage rent, commencing in year seven (2001), of 10% of gross
sales over specified breakpoints. During the first ten years of
the ground lease, the property may only operate as a theatre;
thereafter, with the consent of the landlord and the major
tenants of the shopping center, up to 25,000 square feet of the
property may be used to operate up to two retail businesses.
Pursuant to the Lease, all of the Company's obligations under the
ground lease, including rental payment obligations, are the
responsibility of AMC.
PROMENADE 16. The Promenade 16 opened in March 1996. It is
located on a 6.2 acre site in The Promenade at Woodland Hills
shopping complex at the intersection of 101 Freeway and Topanga
Canyon Boulevard in Woodland Hills, California. The building has
129,822 square feet, including the theatre that has 60,000 square
feet and 2,860 seats. Free parking is available in the shopping
complex parking lots located around the theatre and the mall.
The theatre box office has eight stations; in addition, there are
four self-service box offices outside the box office where
purchasers may purchase tickets or pick up "will-call" tickets.
The theatre has three concessions stands with 26 total stations.
Some concessions stations include pass-through concessions
service. Amenities include stadium AMC LoveSeat [Trademark]
style seating, 46-inch spacing between rows, SDDS [Trademark],
advance ticket purchase by TeleTicket [Trademark], TORUS
[Trademark] Compound Curved Screens, and HITS [Trademark].
During 1997, the Promenade 16 was the thirty-seventh highest
grossing theatre in the United States.
The Promenade at Woodland Hills shopping complex is a two-level,
enclosed mall having 600,000 square feet of gross leasable area
on 34 acres. The shopping complex opened in 1973 and was fully
renovated in 1992. In addition to the AMC Promenade 16 theatre,
the Promenade at Woodland Hills shopping complex is anchored by a
Macy's and Macy's Men's and Children's stores and features 80
specialty shops and restaurants. Based on the 1990 U.S. Census,
there are approximately 450,000 people residing within seven
miles of the Promenade 16. The Promenade 16 site is subject to
various reciprocal easements, restrictions, covenants and other
agreements for operation of the Promenade shopping complex. An
agreement with the developer of the shopping complex contains a
covenant to operate the theatre facility only as a theatre for a
period of 10 years, certain restrictions on the use of the retail
portions of the property and restrictions on the transfer of the
theatre facility. It further grants to the developer of the
shopping complex an option to purchase the theatre facility if at
least 35,000 square feet (or 10 screens) of the facility is not
operated as a theatre. The Promenade 16 site includes a 20,000
square foot food court, which includes 5,000 square feet
available for lease of which 3,700 square feet currently is
leased to six tenants. There is also 40,000 square feet of
retail space below the theatre that is currently vacant. AMC has
leased the entire site from the Company.
ONTARIO MILLS 30. The Ontario Mills 30 opened in December 1996.
It is located on a 14.7 acre site at the intersection of 4th
Street and Milliken Avenue in the Ontario Mills Mall in Ontario,
California. The theatre has 131,534 square feet and 5,496 seats.
Free parking is available to patrons in the 7,500-space Ontario
Mills parking lots around the theatre and the mall. The theatre
has three box offices with a total of 15 stations, as well as two
automated ticket dispensers for pick up of TeleTicket [Trademark]
purchases. There are three concessions stands with a total of 42
stations, all of which feature pass-through concessions service.
Amenities include stadium AMC LoveSeat [Trademark] style seating,
46-inch spacing between rows, SDDS [Trademark], TORUS [Trademark]
Compound Curved Screens, HITS [Trademark], advance ticket
purchase by TeleTicket [Trademark], an Image Video Entertainment
Wall which plays continuous digitized images of coming
attractions and current releases, two arcade areas and a private
room for party rentals and events. During 1997, the Ontario
Mills 30 was the twelfth highest grossing theatre in the United
States.
The Ontario Mills Mall is a 1.7 million square foot mall located
on the northwest corner of the intersection of the Interstate 10
and Interstate 15 freeways and is one of California's largest
outlet malls. The Ontario Mills 30 is the Ontario Mills Mall's
key entertainment anchor of a total of 13 anchors including
Clearinghouse by Saks Fifth Avenue, J.C. Penney Outlet, Sports
Authority, Marshall's, Burlington Coat Factory and Bed, Bath and
Beyond. Other entertainment stores and attractions include Sega
Gameworks, Wolfgang Puck Cafe, Virgin Megastore and the Warner
Bros. Studio Store Outlet. Based on the 1990 U.S. Census, there
are approximately 470,000 people residing within seven miles of
the Ontario Mills 30. The Ontario Mills 30 site is subject to
standard and customary utility and other easements and certain
reciprocal easements, covenants, conditions and restrictions
regarding access, parking, passage, signs and utility lines over,
and the construction of the common areas of the Ontario Mills
Mall. An agreement with the developer contains a covenant to
operate the AMC facility only as a theatre for a period of 10
years (subject to limited exceptions) and provides to such
developer an option to purchase the property if it is not used as
a theatre for a term of 40 years after the expiration of the
initial 10 year operating covenant period. For 15 years from the
date AMC acquired the property, the developer has a right of
first offer and a right of first refusal with respect to any
future sale or lease by the Company of substantially all of the
Property. The price to be paid for the Property pursuant to such
purchase option is its fair market value as determined by the
procedure set forth in such agreement.
LENNOX 24. The Lennox 24 opened in December 1996. It is located
on a 10.6 acre ground leased site in the Lennox Town Center
shopping complex on Olentangy River Road and Route 315 in
Columbus, Ohio. The theatre has 98,261 square feet and 4,412
seats. Approximately 800 parking spaces are allocated
specifically for AMC's patrons, and an additional 662 spaces are
available within the Lennox Town Center; 1,000 additional spaces
will be available when the Lennox Town Center is completely
finished. Theatre box offices feature a total of 14 stations,
and there are two "will-call" stations for advance ticket sales
and pickups. A guest services kiosk allows patrons to make
special arrangements, as well as purchase gift certificates, and
offers other services to moviegoers. The theatre has three
concessions stands with 38 total stations, some of which feature
pass-through concessions service. Amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], advance ticket purchase by TeleTicket
[Trademark], TORUS [Trademark] Compound Curved Screens and HITS
[Trademark]. During 1997, the Lennox 24 was the tenth highest
grossing theatre in the United States.
The Lennox Town Center is a regional shopping center with 320,000
square feet of leasable area on 37.5 acres. It is located
approximately four miles northeast of downtown Columbus, and is
near Ohio State University which is just across the Olentangy
River to the east. Lennox Town Center's anchor tenants include
Target and Barnes and Noble. Based on the 1990 U.S. Census,
there are approximately 525,000 people residing within seven
miles of the Lennox 24. The Lennox 24 is subject to standard and
customary utility and other easements.
The Lennox 24 ground lease was entered into in 1995 and has a 25-
year initial term ending in the year 2020, with ten, five-year
renewal options exercisable by the tenant. Annual minimum rent
is $537,578 through year five of the ground lease, increasing by
$50,000 per annum in year six, $55,000 per annum in year 11,
$61,000 per annum in year 16 and $66,000 per annum in year 21.
Annual rentals during the option periods commence at $805,860
during the first period and increase to $1,900,000 per annum in
the tenth option period. During the initial term, there is also
percentage rent due in an amount per annum equal to two percent
of gross sales over a specified breakpoint in each lease year.
The property must be operated as a theatre through year five of
the ground lease, but thereafter may be operated for any lawful
retail, service or entertainment use (subject to rights of
exclusivity granted other tenants). Pursuant to the Lease, all
of the Company's obligations under the ground lease, including
rent payment obligations, are the responsibility of AMC.
WEST OLIVE 16. The West Olive 16 opened in April 1997. It is a
free-standing theatre located on an 8.02 acre site in a multi-use
development at the intersection of Olive and Interstate 270 in
St. Louis, Missouri. The theatre has 60,418 square feet and
2,817 seats. Free parking is available around the theatre in
1,850 spaces. The theatre has two box offices with a total of
eight stations and two concessions stands with a total of 24
stations. Some concessions stations include pass-through
concessions service. Other amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], TORUS [Trademark] Compound Curved Screens and
HITS [Trademark]. Based on the 1990 U.S. Census, there are
approximately 330,000 people residing within seven miles of the
West Olive 16. The West Olive 16 is subject to standard and
customary utility and other easements.
STUDIO 30. The Studio 30 opened in May 1997. It is a free-
standing theatre located on a 21.56 acre site adjacent to a
Wal-Mart and a Sam's Club store located on the southeast corner of
Westheimer and Dunvale in Houston, Texas. The theatre has
136,154 square feet and 6,032 seats. Free parking is available
to patrons on the project site in 2,000 spaces around the
theatre. The theatre has three box offices with a total of 15
stations and three concessions stands with a total of 45
stations. All of the concessions stands include pass-through
concessions service. Other amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], TORUS [Trademark] Compound Curved Screens and
HITS [Trademark]. Based on the 1990 U.S. Census, there are
approximately 760,000 people residing within seven miles of the
Studio 30. The Studio 30 site is subject to standard utility
easements and City of Houston general ordinances with respect to
platting and building set-back lines.
HUEBNER OAKS 24. The Huebner Oaks 24 opened in June 1997. It is
a free-standing theatre on a 13.56 acre site and serves as an
anchor in a strip shopping center having other national tenants
including Bed, Bath and Beyond, Old Navy, Pier 1 Imports and
Borders Books. The site is located at the intersection of
Huebner Road and Interstate 10 in San Antonio, Texas. The
theatre has 96,004 square feet and 4,400 seats. Parking for
patrons is available in over 2,000 spaces located around the
theatre building and 1,000 spaces in the shopping mall adjacent
to the theatre property pursuant to a reciprocal easement
agreement. The theatre has three box offices with a total of 15
stations and three concessions stands with a total of 43
stations. All of the concessions stands include pass-through
concessions service. Other theatre amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], TORUS [Trademark] Compound Curved Screens and
HITS [Trademark]. Based on the 1990 U.S. Census, there are
approximately 440,000 people residing within seven miles of the
Huebner Oaks 24. The Huebner Oaks 24 is subject to standard and
customary utility and other easements.
FIRST COLONY 24. The First Colony 24 opened in December 1997.
The free-standing theatre is located on a 26.5 acre ground-leased
site across the ring road from the First Colony Mall in Sugar
Land, Texas, a suburb of Houston. The theatre has 107,690 square
feet and 5,098 seats. The site includes 2,200 parking spaces.
The theatre has two box offices with a total of 16 stations.
There are three concessions stands with a total of 40 stations,
all of which feature pass-through concessions service. Other
amenities include stadium AMC LoveSeat [Trademark] style seating,
46-inch spacing between rows, SDDS [Trademark], TORUS [Trademark]
Compound Curved Screens and HITS [Trademark].
The First Colony Mall is a regional mall with more than one
million square feet of retail space located at the Southwest (US
59) and South Beltway 6 freeways. The mall is anchored by
Foley's, Dillard's, J.C. Penney and Mervyn's. Based on the 1990
U.S. Census, there are approximately 270,000 people residing
within seven miles of the First Colony 24. The First Colony 24
is subject to standard and customary utility and other easements.
The First Colony 24 ground lease was entered into in 1996 and has
a 20-year initial term expiring in 2016, with six, five-year
renewal options exercisable by the tenant. Annual minimum rent
is $501,870 through year 10 of the ground lease, $552,057 for
years 11 through 15 of the ground lease and $607,263 for years 16
through 20 of the ground lease. Annual minimum rent for each of
the six, five-year renewal options is $667,989, $734,788,
$808,267, $889,094, $978,003 and $1,075,803, respectively. In
addition, there is also percentage rent due in an amount per
annum equal to three percent of gross receipts over a specified
breakpoint in each lease year. The property must be operated as
a theatre through year 10 of the ground lease, but thereafter may
be operated for any retail or entertainment use (subject to
limited exceptions). Pursuant to the Lease, all of the Company's
obligations under the ground lease, including rent payment
obligations, are the responsibility of AMC.
Upon the occurrence of certain events, the ground lessor has the
right to repurchase the First Colony theatre by paying to the
Company its fair market value as determined by the appraisal
procedure set forth in the ground lease. Those events include:
tenant's request for a change in the use of the premises,
tenant's ceasing to operate in the premises for more than 18
consecutive months, or entry by AMC into a "major sublease" as
defined in the ground lease after the expiration of the operating
covenant. Generally, the ground lessor may in its sole
discretion withhold consent to a subletting or assignment of the
ground lease except to an eligible transferee. The Company
believes that it and AMC are eligible transferees with respect to
the assignment and sublease of the ground lease.
OAK VIEW 24. The Oak View 24 opened in December 1997. It is a
free-standing facility located on a 20.4 acre ground-leased
parcel in the Oak View Plaza shopping center at 144th and West
Center Road, in Omaha, Nebraska. The theatre has 107,402 square
feet and 5,098 seats. Free parking is available in 1,350
shopping center spaces. The theatre has three box offices with a
total of 14 stations and three concessions stands with a total of
40 stations. Some concessions stations include pass-through
concessions service. Other theatre amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows
and SDDS [Trademark]. Some auditoriums feature TORUS [Trademark]
Compound Curved Screens and HITS [Trademark].
Oak View Plaza is a regional shopping complex located across the
street from Oak View Mall. Oak View Plaza's anchor tenants
include Kohl's, Barnes & Noble and Linens 'N' Things. Oak View
Mall's anchor tenants include Yonkers, Dillards, J.C. Penney and
Sears. Based on the 1990 U.S. Census, there are approximately
260,000 people residing within seven miles of the Oak View 24.
AMC's interest under its ground lease in the Oak View 24 property
is subject to standard and customary utility and other easements.
The Oak View 24 ground lease was entered into in 1996 and has a
20-year initial term expiring in October 2016, with six, five-
year renewal options exercisable by the tenant. Fixed rental
under the ground lease is $425,000 annually through the third
year, increasing to $525,000 per annum in years four and five,
then increasing in increments of $50,000 per annum in years six,
11 and 16. Rent during the option periods is $675,000 per annum,
adjusted by changes in the consumer price index over the prior
term. There is no percentage rent. The premises may be used for
a theatre or any other lawful purpose. The tenant under the
ground lease has an option to purchase the land commencing in
year four of the ground lease at a price of $5,000,000, which
purchase price increases in increments of $500,000 in years six,
11 and 16 of the ground lease. Pursuant to the Lease, all of the
Company's obligations under the ground lease, including rent
payment obligations, are the responsibility of AMC.
LEAWOOD TOWN CENTER 20. The Leawood Town Center 20 opened in
December 1997. The free-standing theatre is located on an 8.4
acre site in the Leawood Town Center Plaza shopping center in an
affluent Kansas suburb of Kansas City, Missouri. The theatre has
75,224 square feet and 2,995 seats. Parking is available in
3,300 parking spaces in lots around the mall and on-site. The
theatre has one box office with a total of 12 stations as well as
two automated ticket dispensers for pick-up of TeleTicket
[Trademark] purchases. There are three concessions stands with a
total of 32 stations, all of which feature pass-through
concessions service. Other amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], TORUS [Trademark] Compound Curved Screens and
HITS [Trademark].
The Leawood Town Center Plaza shopping center is located at 119th
Street and Roe in Leawood, Kansas and is anchored by a Jacobson's
department store, a Galyans sporting goods store and the AMC
theatre. It also features other retailers such as Williams
Sonoma, Barnes & Noble, Pottery Barn, The Gap, Gap Kids and The
Limited. There are also 10 restaurants, including On The Border,
Houlihan's and Dean & Delucca, located at the shopping center.
Based on the 1990 U.S. Census, there are approximately 310,000
people residing within seven miles of the Leawood Town Center 20.
The Leawood Town Center 20 is subject to standard and customary
utility and other easements.
GULF POINTE 30. The Gulf Pointe 30 opened in December 1997. It
is a free-standing theatre located on a 34 acre site at the
Interstate 45 and South Beltway 8 freeways in Houston, Texas.
The theatre has 130,891 square feet and 6,008 seats. The site
includes 3,000 parking spaces. The theatre has two box offices
with a total of 18 stations. There are three concessions stands
with a total of 44 stations, all of which feature pass-through
concessions service. Other amenities include stadium AMC
LoveSeat [Trademark] style seating, 46-inch spacing between rows,
SDDS [Trademark], TORUS [Trademark] Compound Curved Screens and
HITS [Trademark].
Based on the 1990 U.S. Census, there are approximately 295,000
people residing within seven miles of the Gulf Pointe 30. The
Gulf Pointe 30 is subject to standard and customary utility and
other easements.
SOUTH BARRINGTON 30. The South Barrington 30 opened in March
1998. It is a free-standing theatre located on a 25.3 acre site
at the intersection of Interstate 90 and Barrington Road in South
Barrington, Illinois, a suburb of Chicago. The theatre has
130,891 square feet and 6,210 seats. The site includes 2,800
parking spaces. The theatre has two box offices with a total of
18 stations. There are three concessions stands with a total of
44 stations, all of which feature pass-through concessions
service. Other amenities include stadium AMC LoveSeat
[Trademark] style seating, 46-inch spacing between rows, SDDS
[Trademark], TORUS [Trademark] Compound Curved Screens and HITS
[Trademark]. Based on the 1990 U.S. Census, there are
approximately 400,000 people residing within seven miles of the
South Barrington 30. The South Barrington 30 is subject to
standard and customary utility and other easements.
Promenade 16 (approximately 10%) and South Barrington 30
(approximately 12%) each represents 10% or more of the Company's
current total assets and pro forma 1998 rental revenues, assuming
no additional properties are acquired in 1998.
OFFICE LOCATIONS. The Company maintains two offices, one in
Kansas City, Missouri and one in Los Angeles, California. Each
office suite is leased from a third party landlord. The Kansas
City office occupies a total of 1,534 square feet with annual
rentals of $36,700. The Los Angeles office occupies a total of
1,494 square feet with annual rentals of $43,500 and an
approximate 4.5% annual escalator.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1997, the Company was not party to any legal
action.
On January 22, 1998, the Company filed suit against Station
Casinos, Inc. ("Station"), a Nevada corporation, in the United
States District Court for the Western District of Missouri.
Among other claims, the Company contends that Station is
infringing the Company's trademark rights by announcing that it
intends to convert its status to a REIT and to change its name to
"Station Entertainment Properties, Inc."
Subsequent to filing the lawsuit, it was announced that a third
party had reached an agreement to acquire Station. The Company
believes this transaction could alter Station's plans to utilize
the name "Station Entertainment Properties, Inc." which could
make the Company's lawsuit moot.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY
HOLDERS.
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions Held
Peter C. Brown 39 Chairman of the Board of Trustees
Robert L. Harris 39 President, Chief Development Officer and
Trustee
David M. Brain 41 Chief Financial Officer
R. Scott Christian 36 Treasurer/Controller
Peter C. Brown has served as Chairman of the Board of Trustees of
the Company since August 1997 and has served as a director of
AMCE and AMC since 1992. Mr. Brown was appointed President of
AMCE in 1997. Mr. Brown served as Executive Vice President of
AMCE from 1994 to 1997. Mr. Brown has served as Executive Vice
President of AMC since 1994, and as Chief Financial Officer of
AMCE and AMC since 1991. Mr. Brown served as Senior Vice
President of AMCE and AMC from 1991 until his appointment as
Executive Vice President in 1994. He served as Treasurer of AMCE
and AMC from 1992 through 1994. Prior to 1991, Mr. Brown served
as a consultant to AMCE. Prior to his engagement by AMCE, Mr.
Brown was a Vice President of DJS Inverness, Inc., an investment
banking firm located in New York City. Mr. Brown is a graduate
of the University of Kansas.
Robert L. Harris has served as President, Chief Development
Officer and a Trustee of the Company since August 1997. From
1992 until joining the Company, he was employed by AMCE, most
recently serving as a Senior Vice President of AMC in charge of
its international efforts. From 1980 to 1992, Mr. Harris was
employed by Carlton Browne & Company, a California-based real
estate developer, serving as its President from 1985 to 1992.
During such employment, Mr. Harris was in charge of development
projects totaling in excess of 3.0 million square feet, including
more than 900,000 square feet of commercial/retail development.
Mr. Harris is a director of Imperial Bancorp's Financial Group
and serves on the Board of Pepperdine University's George L.
Graziadio School of Business and Management. Mr. Harris is an
alumnus of the University of Southern California. Mr. Harris is
a member of the International Council of Shopping Centers (ICSC)
and was a speaker on ETRC's at the last two ICSC regional
conferences.
David M. Brain has served as Chief Financial Officer of the
Company since August 1997 and acted as a consultant to AMCE
regarding the formation of the Company during July 1997. From
1996 until that time he was a Senior Vice President in the
investment banking and corporate finance department of George K.
Baum & Company ("GKB"), an investment banking firm headquartered
in Kansas City, Missouri. Mr. Brain's responsibilities at GKB
included client advisory assignments involving the establishment
of real estate joint ventures and the placement of debt and
equity for real estate acquisitions and developments. Before
joining GKB, Mr. Brain was in the Kansas City office of KPMG Peat
Marwick LLP as Managing Director of the Corporate Finance group,
a practice unit that he organized and managed for over 12 years.
Besides his corporate finance experience, Mr. Brain has appeared
numerous times as an expert witness in federal and state court
regarding valuation matters. He received a Bachelor of Arts
degree in Economics from Tulane University with honors, as well
as Phi Beta Kappa and Tulane Scholar designations, and a Masters
in Business Administration from the A.B. Freeman Graduate
Business School at Tulane University, where he was awarded an
academic fellowship. Mr. Brain serves as a director of Capital
for Entrepreneurs, Inc., a venture capital fund, the Center for
Business Innovation, Inc., a not-for-profit small business
incubator located on the campus of the University of Missouri at
Kansas City, Weather Protection Systems, Inc., a vendor of
tension fabric structures, and the Council for Entrepreneurship
at the University of Missouri at Kansas City.
R. Scott Christian was recently appointed Treasurer/Controller of
the Company. From August 1996 to November 1997, he had been
President of his own consulting company. From 1993 to 1996, Mr.
Christian served as Chief Operating Officer of a privately held
middle market mail order catalog company specializing in high-end
apparel. In addition to operational responsibilities, Mr.
Christian was also responsible for all financial functions within
the company. Prior to that, Mr. Christian was a manager in the
Corporate Finance group of the Kansas City office of KPMG Peat
Marwick LLP for six years. Prior to KPMG Peat Marwick, Mr.
Christian was the Vice President of Turner State Bank in Kansas
City. Mr. Christian managed all of the operations and financial
areas of the bank including all financial institution regulatory
reporting and compliance. He achieved Certified Cash Manager
certification from the Treasury Management Association in 1991.
Mr. Christian received a BSBA and an MBA from the University of
Kansas.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Shares are traded on the New York Stock Exchange
under the symbol EPR. The Company's Shares commenced trading on
November 18, 1997. The following table sets forth the range of
high and low closing prices of the Company's Shares during the
six week period ended December 31, 1997 in which the Company's
Shares were publicly traded in 1997:
Fiscal Year 1997 High Low
Fourth Quarter (six weeks) 19 7/8 18 7/8
At March 17, 1998, there were approximately 8,100 holders of
record of the Company's Shares.
On December 16, 1997, the Company's Board of Trustees declared an
$0.18 per Share dividend which was paid in January 1998. This
dividend represented an 8% average annual return based on the
weighted average number of Shares outstanding for the fourth
quarter of 1997 and based on the initial public offering price of
$20 per Share. On March 11, 1998, the Board of Trustees declared
a dividend of $.40 per Share to be paid in the second quarter of
1998. This dividend represents an 8% average annual return based
on the weighted average number of Shares outstanding for the
first quarter of 1998 and based on the initial public offering
price of $20 per Share.
The Board of Trustees and Company management expect to distribute
a substantial portion of the Company's FFO as dividends on a
quarterly basis. The Credit Agreement entered into by the Company
in connection with the Bank Credit Facility restricts the Company
from paying dividends in excess of 95% of FFO during the first
year of the Credit Agreement and 90% of FFO in any year
thereafter, provided that the Company may at all times pay such
dividends as required to maintain its status as a REIT. Upon any
Event of Default by the Company under the Credit Agreement, the
Company would be permitted to pay dividends only to the extent
required to maintain its status as a REIT.
USE OF PROCEEDS FROM REGISTERED SECURITIES
On November 18, 1997, the Company's Registration Statement on
Form S-11 and Form S-3 with respect to the Shares offered and
sold in the IPO, Registration No. 333-35281, was declared
effective by the Securities and Exchange Commission. The
offering was underwritten by a syndicate of which Goldman, Sachs
& Co., Morgan Stanley Dean Witter, Furman Selz, Prudential
Securities Incorporated and Salomon Brothers Inc. served as
managing underwriters. The Company registered 13,800,000 Shares
for sale at the public offering price of $20 per Share and the
aggregate public offering price of $276 million. All of such
Shares were sold in the offering at the public offering price.
The Company incurred underwriting discounts and commissions and
underwriting expenses in the amount of $19.2 million and incurred
other offering expenses (including legal, accounting, printing,
travel and other fees and Company formation expenses) in the
aggregate amount of $2.4 million, for a total aggregate expense
amount of $21.6 million. A total of approximately $355,000 of
such offering and formation expenses was advanced by AMCE on
behalf of the Company and will be reimbursed by the Company to
AMCE. The net offering proceeds to the Company, after deducting
all expenses of the offering, were $254.4 million.
On November 24, 1997, the Company used $162.7 million of net
offering proceeds to acquire eight megaplex theatre properties
from AMCE (or its subsidiaries). These eight properties were:
Grand 24 in Dallas, Texas; Mission Valley 20 in San Diego,
California; Promenade 16 in Los Angeles, California; Ontario
Mills 30 in Los Angeles, California; Lennox 24 in Columbus, Ohio;
West Olive 16 in St. Louis, Missouri; Studio 30 in Houston,
Texas; and Huebner Oaks 24 in San Antonio, Texas.
On December 22, 1997, the Company used $51.6 million of net
offering proceeds to acquire three megaplex theatre properties
from AMCE. These three properties were: First Colony 24 in
Houston, Texas; Oak View 24 in Omaha, Nebraska; and Leawood Town
Center 20 in Kansas City, Missouri.
On February 2, 1998, the Company used $27.6 million in net
offering proceeds to acquire one megaplex theatre property, Gulf
Pointe 30 in Houston, Texas, from AMCE as well as three adjacent
land parcels which the Company is holding for future development.
On March 9, 1998, the Company acquired one megaplex theatre
property, South Barrington 30 in Chicago, Illinois, from AMCE.
The purchase price for South Barrington 30 ($34.5 million) was
paid $13.5 million from offering proceeds and the remaining $21
million with proceeds drawn by the Company under the Bank Credit
Facility. Upon the purchase of South Barrington 30, the Company
had fully deployed its initial public offering proceeds.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial information
represents the results of operations of the Company for the
period August 29, 1997 (inception) to December 31, 1997 and the
financial position of the Company as of the end of such period.
INCOME STATEMENT DATA 45 Days Ending
(In thousands of dollars) December 31, 1997
Rental revenue $1,887
Personnel expense 183
Business development expense 12
Shareholder expense 22
Administrative expense 144
Earnings before interest,
taxes, depreciation and amortization 1,526
Depreciation and amortization 668
Earnings before interest and taxes 858
Net interest expense (584)
Net income $1,442
FUNDS FROM OPERATIONS
Net income $1,442
Property depreciation significant
to real estate 659
Funds from Operations $2,101
PER SHARE INFORMATION
(based on 13,860,100 shares
outstanding as of December 31, 1997)
Net income $0.10
Funds from Operations $0.15
Dividends per share $0.18
BALANCE SHEET DATA
(in thousands of dollars) December 31, 1997
Net investment in real estate $213,812
Cash and cash equivalents 45,220
Other assets 456
Total assets $259,488
Current liabilities $8,262
Stockholders' equity 251,226
Total liabilities and
stockholders' equity $259,488
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the
accompanying Financial Statements and Notes thereto of the
Company. The forward-looking statements included in this
discussion and elsewhere in this Form 10-K involve risks and
uncertainties, including anticipated financial performance,
business prospects, industry trends, anticipated capital
expenditures, shareholder returns and other matters, which
reflect management's best judgment based on factors currently
known. Actual results and experience could differ materially
from the anticipated results and expectations expressed in the
Company's forward-looking statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS REPORT ON FORM
10-K CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND IDENTIFIED
BY SUCH WORDS AS "WILL BE," "INTEND," "CONTINUE," "BELIEVE,"
"MAY," "EXPECT," "HOPE," "ANTICIPATE," "GOAL," "FORECAST," OR
OTHER COMPARABLE TERMS. THE COMPANY'S ACTUAL FINANCIAL
CONDITION, RESULTS OF OPERATIONS OR BUSINESS MAY VARY MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS AND
INVOLVE VARIOUS RISKS AND UNCERTAINTIES, INCLUDING BUT NOT
LIMITED TO THE FOLLOWING:
. The Company's initial dependence on a single tenant and
lease guarantor for its lease revenues and ability to make
distributions to its shareholders
. The Company's future ability to diversity its portfolio
. Potential conflicts of interest involving the Company and
its initial tenant and lease guarantor
. Competition from other entities providing capital to the
entertainment industry
. Dependence on key personnel
. Operating risks in the entertainment industry that may
affect the operations of the Company's tenants
. Tax risks arising from the Company's continuing ability to
qualify as a REIT
. Interest rates and availability of debt financing
. General real estate investment risks
. Other risk and uncertainties
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS, AND ARE ENCOURAGED TO REVIEW THE RISK
FACTORS IDENTIFIED IN THE COMPANY'S PROSPECTUS CONTAINED IN THE
REGISTRATION STATEMENT ON FORM-11 AND FORM S-3.
RESULTS OF OPERATIONS
The Company began operations concurrent with its initial public
offering on November 18, 1997. Consequently, there is no
historic information with which to compare current results.
During the period from November 18, 1997 (commencement of
operations) to December 31, 1997, the Company had net income of
$1.44 million or $0.10 per Share on rental income of $1.9 million
or $0.14 per Share. FFO was $2.1 million or $0.15 per Share.
General and administrative expense totaled $361,000.
As of the first quarter of 1998, the Company has acquired all of
the Initial Properties plus one Option Property in accordance
with the original schedule proposed in the Prospectus. Assuming
that the remaining Option Properties are purchased on schedule,
the Company believes it will meet or exceed its 1998 rental
income goal as stated in its Prospectus (for the 12 months ending
November 30, 1998).
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 the Company had $45.2 million in cash and
short term investments. The Company deployed this cash in 1998
with its February and March acquisitions of Gulf Pointe 30 and
South Barrington 30, respectively.
The Company entered into a three year unsecured revolving credit
facility (the "Bank Credit Facility") on March 2, 1998. The Bank
Credit Facility provides for up to $200 million of unsecured
credit availability to fund additional property acquisitions and
Company operations. The availability under this Credit Facility
is determined by applying a 10.75% capitalization rate to the net
operating income of eligible properties and multiplying the
result by 50%. The Company drew $21 million under the Bank
Credit Facility in March 1998 to complete the acquisition of
South Barrington 30. The Company anticipates it will draw an
additional $109 million over the course of 1998 to fund its
acquisition of the four remaining AMCE Option Properties. The
remaining credit availability of $69 million will be utilized, to
the extent opportunities present themselves, to acquire
entertainment properties from other operators and, to the extent
required to supplement cash flow from operations, to fund
operations. The Bank Credit Facility contains a number of
financial covenants and restrictions, including restrictions on
the amount of secured indebtedness that can be obtained by the
Company, a restriction on dividends to 95% of FFO in year one and
90% of FFO thereafter, and provisions governing the eligibility
and value of properties for borrowing base calculations.
Management is considering obtaining a long term secured credit
facility which would securitize certain specific properties in
its portfolio in order to take advantage of the relatively low
long term rates currently available in the marketplace. This
long term secured credit facility would mitigate a significant
portion of the interest rate risk potentially associated with the
Bank Credit Facility. However, there can be no assurance secured
financing will be available to the Company on favorable terms.
The Company anticipates that its cash from operations and credit
availability under the Bank Credit Facility will provide adequate
liquidity to conduct its operations, fund administrative and
operating costs, interest payments and additional planned
property acquisitions, and allow distributions to the Company's
shareholders and avoidance of corporate level federal income or
excise tax in accordance with Internal Revenue Code requirements
for qualification as a REIT.
Should opportunities be presented for property acquisitions
consistent with the Company's investment objectives that would
cause the Company to exhaust its credit availability under the
Bank Credit Facility, the Company intends to either: (i) make
certain property acquisitions utilizing additional issuance of
the Company's Shares as consideration in the transaction(s);
and/or (ii) conduct a secondary offering of Shares which would be
designed to raise capital for current acquisition needs and a
reduction in borrowings under the Bank Credit Facility, thereby
replenishing the available credit for future acquisitions.
YEAR 2000 DISCLOSURE
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Because the Company commenced operations only
in November 1997, its accounting software is currently its only
operating system. The third party vendor of the Company's
accounting software has certified that the system is year 2000
compliant.
There are significant third parties on which the Company's
operations are dependent or which provide the Company with
information. There can be no assurance the systems of other
companies on which the Company relies will be year 2000
compliant on a timely basis and thus no assurance such companies'
systems would not have an adverse effect on the Company's
business or operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Company did not have a material exposure to interest rate
risk in 1997 and thus did not invest in any derivatives or market
risk sensitive instruments in that year. In compliance with a
requirement imposed under the Bank Credit Facility, the Company
in 1998 entered into a hedge instrument designed to reduce the
Company's exposure to the risk of fluctuations in interest rates.
The Company is anticipating collateralizing a portion of its
current portfolio into a securitized term debt instrument during
the second quarter of 1998 in order to take advantage of the
currently low interest rate environment. In anticipation of
entering into this term debt instrument, the Company has entered
into a hedging instrument to "lock in" an attractive rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Entertainment Properties Trust
Financial Statements and
Other Financial Information
Period from August 29, 1997
(date of inception) to December 31, 1997
Contents
Report of Independent Auditors. . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . .2
Statement of Income . . . . . . . . . . . . . . . . . . . . . .3
Statement of Changes in Shareholders' Equity . . . . . . . . . .4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . .5
Notes to Financial Statements . . . . . . . . . . . . . . . . .6
Other Financial Information
Real Estate and Accumulated Depreciation . . . . . . . . . . . 12
Report of Independent Auditors
The Board of Trustees
Entertainment Properties Trust
We have audited the accompanying balance sheet of Entertainment
Properties Trust (the Company) as of December 31, 1997, and the
related statements of income, changes in shareholders' equity and
cash flows for the period from August 29, 1997 (date of
inception) to December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Company as of December 31, 1997, and the results of its
operations and its cash flows for the period from August 29, 1997
(date of inception) to December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Ernst & Young LLP
January 13, 1998
Entertainment Properties Trust
Balance Sheet
December 31, 1997
ASSETS
Rental properties, net $213,812,226
Cash and cash equivalents 45,220,269
Other assets 456,191
Total assets $259,488,686
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 2,524,346
Advisory fee payable 1,368,000
Dividends payable 2,494,818
Unearned rents 1,875,126
Total liabilities 8,262,290
Shareholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized;
13,860,100 shares issued and outstanding 138,601
Preferred stock, $.01 per share,
5,000,000 shares authorized;
no shares issued or outstanding --
Additional paid-in capital 255,720,702
Loans to officers (2,400,000)
Non-vested stock (1,180,000)
Distributions in excess of net income (1,052,907)
Total shareholders' equity 251,226,396
Total liabilities and shareholders' equity $259,488,686
See accompanying notes.
Entertainment Properties Trust
Statement of Income
Period from August 29, 1997
(date of inception) to December 31, 1997
Rental income $1,886,884
Expenses:
General and administrative expenses 372,695
Depreciation 659,160
Total expenses 1,031,855
Income from property operations 855,029
Interest income 586,882
Net income $1,441,911
Basic and diluted earnings per common share $.10
See accompanying notes.
Entertainment Properties Trust
Statement of Changes in Shareholders' Equity
Additional Non-vested Distributions
Common Paid-In Loans to Stock in Excess of
Stock Capital Shareholders Grants Net Income Total
Issuance of
common stock $138,601 $275,863,399 $ -- $ -- $ -- $276,002,000
Costs of
issuance of
common stock -- (20,142,697) -- -- -- (20,142,697)
Loans to
officers -- -- (2,400,000) -- -- (2,400,000)
Non-vested
stock -- -- -- (1,200,000) -- (1,200,000)
Amortization
of stock grant -- -- -- 20,000 -- 20,000
Net income -- -- -- -- 1,441,911 1,441,911
Dividends to
common
shareholders
($.18 per share) -- -- -- -- (2,494,818) (2,494,818)
Balance at
December 31,
1997 $138,601 $255,720,702 $(2,400,000) $(1,180,000) $(1,052,907) $251,226,396
See accompanying notes.
<TABLE\>
Entertainment Properties Trust
Statement of Cash Flows
Period from August 29, 1997
(date of inception) to December 31, 1997
OPERATING ACTIVITIES
Net income $ 1,441,911
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 659,160
Increase in other assets (456,191)
Increase in accounts payable
and accrued liabilities 3,892,346
Increase in unearned rents 1,875,126
Net cash provided by operating activities 7,412,352
INVESTING ACTIVITIES
Acquisitions of rental properties (214,471,386)
Net cash used in investing activities (214,471,386)
FINANCING ACTIVITIES
Issuance of common stock 272,422,000
Costs associated with common stock offering (20,142,697)
Net cash provided by financing activities 252,279,303
Net increase in cash and cash equivalents 45,220,269
Cash and cash equivalents at beginning of period --
Cash and cash equivalents at end of period $ 45,220,269
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 2,494,818
See accompanying notes.
1. ORGANIZATION
Entertainment Properties Trust (the Company) is a Maryland real
estate investment trust (REIT) initially capitalized on August
29, 1997. The Company was formed to acquire and develop
entertainment properties including megaplex theatres and
entertainment theme retail centers.
In November 1997, the Company completed an initial public
offering of 13,860,000 common shares, the proceeds of which were
used to acquire theatre properties in accordance with its
business plan.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results may differ significantly from such estimates and
assumptions.
RENTAL PROPERTIES
Rental properties are carried at cost less accumulated
depreciation. Costs incurred for the acquisition of the
properties are capitalized. Accumulated depreciation is computed
over the estimated useful lives of the assets, which generally
are estimated to be 40 years for buildings and improvements.
Expenditures for ordinary maintenance and repairs are charged to
operations in the period incurred. Significant renovations and
improvements which improve or extend the useful life of the asset
are capitalized and depreciated over its estimated useful life.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company
would record impairment losses on long-lived assets if events and
circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets
were less than the carrying amounts of those assets.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
All leases contain provisions which provide an annual escalation
in base rent in the amount of the change in the Consumer Price
Index not to exceed 2% (base rent escalation). In addition,
tenants are subject to additional rents in the event gross
operating revenues of the properties exceed certain thresholds
defined in the lease agreements (percentage rents). Base rents
are recognized on a straight-line basis over the term of the
lease, and the base rent escalation and percentage rents are
recognized when earned.
INCOME TAXES
The Company operates in a manner intended to enable it to qualify
as a REIT under the Internal Revenue Code (the Code). A REIT
which distributes at least 95% of its taxable income to its
shareholders each year and which meets certain other conditions
is not taxed on that portion of its taxable income which is
distributed to its shareholders. The Company intends to continue
to qualify as a REIT and to distribute substantially all of its
taxable income to its shareholders. Accordingly, no provision has
been made for income taxes.
Earnings and profits, which will determine the taxability of
distributions to shareholders, will differ from that reported for
financial reporting purposes due primarily to differences in the
basis of the assets and the estimated useful lives used to
compute depreciation.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its
employee stock options rather than the alternative fair value
accounting provided for under SFAS No. 123, "Accounting and
Disclosure for Stock Based Compensation." Under APB 25, because
the exercise price of the Company's employee stock options equals
the market price of the underlying stock at the date of grant, no
compensation expense is recognized.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF RISK
American Multi-Cinema Inc. (AMC) is the lessee of all of the
rental properties held by the Company at December 31, 1997 as a
result of a series of sale leaseback transactions pertaining to a
number of AMC megaplex theatres. The Company's initial revenues,
and its ability to make distributions to its shareholders, will
depend on rental payments by AMC under the leases, or its parent,
AMC Entertainment, Inc. (AMCE), as the guarantor of AMC's
obligations under the leases.
CASH EQUIVALENTS
Cash equivalents include demand deposits and shares of a money
market mutual fund for which cost approximates market value.
3. RENTAL PROPERTIES
The following summarizes the carrying amounts of rental
properties as of December 31, 1997:
Buildings and improvements $182,141,386
Land 32,330,000
214,471,386
Accumulated depreciation (659,160)
Total $213,812,226
At December 31, 1997, the Company has committed to purchase a
megaplex theatre from AMC in the amount of $34,500,000. The
Company also has an option to purchase an additional five
megaplex theatres from AMC with an estimated purchase price of
$138,500,000. The date of acquisition, if any, will not occur
prior to the opening dates of the megaplex theatres, which is
expected to occur in 1998.
4. OPERATING LEASES
The Company's rental properties are leased under operating leases
with expiration dates ranging from 13 to 15 years. Future minimum
rentals on noncancelable tenant leases at December 31, 1997 are
as follows:
1998 $ 22,501,500
1999 22,501,500
2000 22,501,500
2001 22,501,500
2002 22,501,500
Thereafter 196,731,115
$309,238,615
5. STOCK OPTION PLAN
The Company maintains a stock option plan (the Plan) under which
options to purchase up to 1,500,000 shares of the Company's
common stock, subject to adjustment in the event of certain
corporate events, may be granted. These options will provide the
right to purchase shares at a price not less than the fair market
value of the shares at the date of grant. The options may be
granted for any reasonable term, not to exceed 10 years.
During the period ended December 31, 1997, the Company granted
options to purchase 60,000 shares at the initial public offering
price of $20 per share under the Plan. These options will vest in
equal increments over a period of five years as of the date of
grant. No other options are outstanding at December 31, 1997.
Pro forma information regarding net income and earnings per share
is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Sholes
option pricing model with the following assumptions for the year
ended December 31, 1997: risk-free interest rate of 5.8%,
dividend yields of 8%, volatility factors of the expected market
price of the Company's common stock of .19 and an expected life
of the option of seven years.
5. STOCK OPTION PLAN (CONTINUED)
The Company's pro forma information as of December 31, 1997 is as
follows:
Net income:
As reported $1,441,911
Pro forma 1,441,501
Earnings per share:
As reported .10
Pro forma .10
During 1997, the Company also granted 60,000 restricted shares at
the initial public offering price of $20 per share to certain
executives of the Company. The holders of these restricted shares
have voting rights and are eligible to receive dividends and
distributions as of the date of grant. These shares vest in equal
increments over a period of five years from the date of grant.
The Company records compensation expense pertaining to these
restricted shares ratably over the period of vesting.
6. RELATED PARTIES
The Company issued notes in the amount $2,400,000 to employees to
purchase 120,000 shares at the initial public offering price.
These notes bear interest at 6.1% and are due in approximately
equal annual installments on November 30, 2000, 2001 and 2002.
7. EARNINGS PER SHARE
The following table sets forth the computation of the basic and
diluted earnings per share as of December 31, 1997:
Numerator:
Net income $1,441,911
Numerator for basic and
dilutive earnings per
share -- income available
to common shareholders 1,441,911
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares 13,800,100
Effect of dilutive securities:
Non-vested stock grants 60,000
Dilutive potential common shares 60,000
Denominator for diluted earnings
per share -- adjusted
weighted-average shares 13,860,100
Basic earnings per share $.10
Diluted earnings per share $.10
Other Financial Information
Entertainment Properties Trust
Real Estate and Accumulated Depreciation
December 31, 1997
Cost Capitalized
Subsequent
Initial Cost to Company to Acquisition
Buildings
and Carrying
Property Description Location Encumbrances Land Improvements Improvements Costs
Grand 24 Dallas, TX None $ 3,060,000 $ 15,540,000 $ -- $ --
Mission Valley 20 San Diego, CA None -- 16,300,000 -- --
Promenade 16 Los Angeles, CA None 6,021,000 22,479,000 -- --
Ontario Mills 30 Los Angeles, CA None 5,521,000 19,779,000 -- --
Lennox 24 Columbus, OH None -- 12,900,000 -- --
West Olive 16 St. Louis, MO None 4,985,000 12,815,000 -- --
Studio 30 Houston, TX None 6,023,000 20,377,000 -- --
Huebner Oaks 24 San Antonio, TX None 3,006,000 13,894,000 -- --
First Colony 24 Houston, TX None -- 19,100,000 -- --
Oakview 24 Omaha, NE None -- 16,700,000 -- --
Leawood Town
Center 20 Kansas City, MO None 3,714,000 12,086,000 -- --
Unallocated capitalized
acquisition costs None -- 171,386 -- --
Totals $32,330,000 $182,141,386 $ -- $ --
<TABLE\>
Life on
Which
Gross Amount at Which Carried Depreci-
at Close of Period ation in
Latest
Accumu Income
Buildings -lated Date of State-
Property and Depre- Construc Date ments is
Description Location Land Improvements Total ciation -tion Acquired Computed
Grand 24 Dallas, $ 3,060,000 $ 15,540,000 $ 18,600,000 $ 64,750 May November 40 years
TX 1995 1997
Mission San Diego, -- 16,300,000 16,300,000 67,917 December November 40 years
Valley 20 CA 1995 1997
Promenade Los Angeles, 6,021,000 22,479,000 28,500,000 93,663 March November 40 years
16 CA 1996 1997
Ontario Los Angeles, 5,521,000 19,779,000 25,300,000 82,413 December November 40 years
Mills 30 CA 1996 1997
Lennox 24 Columbus, -- 12,900,000 12,900,000 53,750 December November 40 years
OH 1996 1997
West St. Louis, 4,985,000 12,815,000 17,800,000 53,396 April November 40 years
Olive 16 MO 1997 1997
Studio 30 Houston, 6,023,000 20,377,000 26,400,000 84,904 May November 40 years
TX 1997 1997
Huebner San Antonio, 3,006,000 13,894,000 16,900,000 57,892 June November 40 years
Oaks 24 TX 1997 1997
First Houston, -- 19,100,000 19,100,000 39,792 December November 40 years
Colony 24 TX 1997 1997
Oakview 24 Omaha, -- 16,700,000 16,700,000 34,792 February November 40 years
NE 1998 1997
Leawood Kansas 3,714,000 12,086,000 15,800,000 25,179 December November 40 years
Town City, 1998 1997
Center 20 MO
Unallocated capitalized -- 171,386 171,386 712 N/A December 40 years
acquisition costs 1997
Totals $32,330,000 $182,141,386 $214,471,386 $659,160
<TABLE\>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on May 13, 1998 (the "Proxy Statement"),
contains under the captions "Election of Trustee" and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934"
certain information required by Item 10 of Form 10-K, which
information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Proxy Statement contains under the captions "Election of
Trustee Compensation of Trustees" and "Executive Compensation
and Other Information" certain information required by Item 11 of
Form 10-K, which information is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Proxy Statement contains under the caption "Ownership of
Company Shares" certain information required by Item 12 of Form
10-K, which information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Peter C. Brown, Chairman of the Board of the Company, is
President of AMCE, Executive Vice President of AMC and Chief
Financial Officer of AMCE and AMC. All of the Company's existing
Properties were acquired from AMCE or its affiliates and have
been leased-back to AMC. Reference is made to Item 2 of this
Form 10-K for information with respect to the purchase prices and
lease terms in connection with such Properties and the manner in
which such prices and terms were arrived at. Mr. Brown had no
direct financial interest in such transactions.
For information with respect to indebtedness owed to the Company
by Robert L. Harris, President and Chief Development Officer of
the Company, and David M. Brain, Chief Financial Officer and
Secretary of the Company, reference is made to the Proxy
Statement under the caption "Executive Compensation and Other
Information" which is incorporated herein by this reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Exhibits, Financial Statements and Financial Statement
Schedules:
1. Financial Statements:
Report of Independent Auditors
Balance Sheet as of December 31, 1997
Statement of Income for the period from August 29,
1997 to December 31, 1997.
Statement of Changes in Shareholders' Equity for
the period from August 29, 1997 to December 31,
1997.
Statement of Cash Flows for the period from August
29, 1997 to December 31, 1997.
Notes to Financial Statements.
2. Financial Statement Schedules:
Real Estate and Accumulated Depreciation
(b) Exhibits
Exhibit No. Description
3.1 Declaration of Trust of the Company (filed as Exhibit
4.1 to the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281) filed on
September 10, 1997 and incorporated herein by
reference).
3.2 Amended and Restated Declaration of Trust of the
Company (filed as Exhibit 4.2 to Amendment No. 1 to the
Company's Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on October 28, 1997
and incorporated herein by reference).
3.3 Bylaws of the Company (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on September 10,
1997 and incorporated herein by reference).
3.4 Amended Bylaws of the Company (filed as Exhibit 4.4 to
Amendment No. 2 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 5, 1997 and incorporated herein by
reference).
3.5 Form of share certificate for common shares of
beneficial interest of Company (filed as Exhibit 4.5 to
Amendment No. 1 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on October 28, 1997 and incorporated herein by
reference).
10.1 Form of Agreement of Sale and Purchase between the
Company and American Multi-Cinema, Inc. (filed as
Exhibit 10.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on November 13, 1997
and incorporated herein by reference).
10.2 Form of Option Agreement between the Company and
American Multi-Cinema, Inc. (filed as Exhibit 10.2 to
Amendment No. 3 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 13, 1997 and incorporated herein by
reference).
10.3 Form of Option Agreement between the Company and Clip
Funding, Limited Partnership (filed as Exhibit 10.3 to
Amendment No. 3 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 13, 1997 and incorporated herein by
reference).
10.4 Form of AMCE Right to Purchase Agreement between the
Company and AMC Entertainment Inc. (filed as Exhibit
10.4 to Amendment No. 3 to the Company's Registration
Statement on Form S-11 and S-3 (Registration No. 333-
35281) filed on November 13, 1997 and incorporated
herein by reference).
10.5 Form of Lease entered into between the Company and
American Multi-Cinema, Inc. (filed as Exhibit 10.5 to
Amendment No. 3 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 13, 1997 and incorporated herein by
reference).
10.6 Form of Guaranty of Lease entered into between the
Company and AMC Entertainment, Inc. (filed as Exhibit
10.6 to Amendment No. 3 to the Company's Registration
Statement on Form S-11 and S-3 (Registration No. 333-
35281) filed on November 13, 1997 and incorporated
herein by reference).
10.7 Credit Agreement, dated as of March 2, 1998, among
Entertainment Properties Trust, as Borrower, EPT
Downreit, Inc., as Subsidiary Guarantor, The Bank of
New York, as a Lender, The Bank of Nova Scotia, New
York Agency, as a Lender, Goldman Sachs Mortgage
Company, as a Lender, Bank Leumi USA, as a Lender, The
Bank of New York, as Administrative Agent, The Bank of
Nova Scotia, New York Agency and Goldman Sachs Mortgage
Company, as Co-Syndication Agents and The Bank of Nova
Scotia, New York Agency, and Goldman Sachs Mortgage
Company, as Co-Documentation Agents, together with the
Form of Note.
10.8 First Amendment to Credit Agreement, dated as of March
18, 1998, among Entertainment Properties Trust, as
Borrower, EPT Downreit, Inc., as Subsidiary Guarantor,
The Bank of New York, as a Lender, The Bank of Nova
Scotia, New York Agency, as a Lender, Goldman Sachs
Mortgage Company, as a Lender, Bank Leumi USA, as a
Lender, The Bank of New York, as Administrative Agent,
The Bank of Nova Scotia, New York Agency and Goldman
Sachs Mortgage Company, as Co-Syndication Agents and
The Bank of Nova Scotia, New York Agency, and Goldman
Sachs Mortgage Company, as Co-Documentation Agents.
10.9 Form of Indemnification Agreement entered into between
the Company and each of its trustees and officers
(filed as Exhibit 10.8 to Amendment No. 1 to the
Company's Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on October 28, 1997
and incorporated herein by reference).**
10.10 1997 Share Incentive Plan (filed as Exhibit 10.9 to
Amendment No. 2 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 5, 1997 and incorporated herein by
reference).**
10.11 Deferred Compensation Plan for Non-Employee Trustees
(filed as Exhibit 10.10 to Amendment No. 2 to the
Company's Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on November 5, 1997
and incorporated herein by reference).**
10.12 Annual Incentive Program (filed as Exhibit 10.11 to
Amendment No. 2 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-35281) filed
on November 5, 1997 and incorporated herein by
reference).**
10.13 Employment Agreement with Robert L. Harris (filed as
Exhibit 10.12 to Amendment No. 3 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on November 13, 1997
and incorporated herein by reference).**
10.14 Employment Agreement with David M. Brain (filed as
Exhibit 10.13 to Amendment No. 3 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on November 13, 1997
and incorporated herein by reference).**
21 Subsidiaries of the Company.
27 Financial Data Schedule.
___________________________
** Management contracts or compensatory plans or arrangements
required to be identified by Item 13(a).
INDEX OF EXHIBITS
Exhibit No. Description Page
3.1 Declaration of Trust of the Company (filed as *
Exhibit 4.1 to the Company's Registration
Statement on Form S-11 and S-3 (Registration
No. 333-35281) filed on September 10, 1997
and incorporated herein by reference).
3.2 Amended and Restated Declaration of Trust of *
the Company (filed as Exhibit 4.2 to
Amendment No. 1 to the Company's Registration
Statement on Form S-11 and S-3 (Registration
No. 333-35281) filed on October 28, 1997 and
incorporated herein by reference).
3.3 Bylaws of the Company (filed as Exhibit 4.3 to *
the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281)
filed on September 10, 1997 and incorporated
herein by reference).
3.4 Amended Bylaws of the Company (filed as Exhibit *
4.4 to Amendment No. 2 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on
November 5, 1997 and incorporated herein by
reference).
3.5 Form of share certificate for common shares of *
beneficial interest of Company (filed as
Exhibit 4.5 to Amendment No. 1 to the
Company's Registration Statement on Form S-11
and S-3 (Registration No. 333-35281) filed on
October 28, 1997 and incorporated herein by
reference).
10.1 Form of Agreement of Sale and Purchase between *
the Company and American Multi-Cinema, Inc.
(filed as Exhibit 10.1 to Amendment No. 3 to
the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281)
filed on November 13, 1997 and incorporated
herein by reference).
10.2 Form of Option Agreement between the Company *
and American Multi-Cinema, Inc. (filed as
Exhibit 10.2 to Amendment No. 3 to the
Company's Registration Statement on Form S-11
and S-3 (Registration No. 333-35281) filed on
November 13, 1997 and incorporated herein by
reference).
10.3 Form of Option Agreement between the Company *
and Clip Funding, Limited Partnership (filed
as Exhibit 10.3 to Amendment No. 3 to the
Company's Registration Statement on Form S-11
and S-3 (Registration No. 333-35281) filed on
November 13, 1997 and incorporated herein by
reference).
10.4 Form of AMCE Right to Purchase Agreement between *
the Company and AMC Entertainment Inc. (filed
as Exhibit 10.4 to Amendment No. 3 to the
Company's Registration Statement on Form S-11
and S-3 (Registration No. 333-35281) filed on
November 13, 1997 and incorporated herein by
reference).
10.5 Form of Lease entered into between the Company *
and American Multi-Cinema, Inc. (filed as
Exhibit 10.5 to Amendment No. 3 to the
Company's Registration Statement on Form S-11
and S-3 (Registration No. 333-35281) filed on
November 13, 1997 and incorporated herein by
reference).
10.6 Form of Guaranty of Lease entered into between *
the Company and AMC Entertainment, Inc.
(filed as Exhibit 10.6 to Amendment No. 3 to
the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281)
filed on November 13, 1997 and incorporated
herein by reference).
10.7 Credit Agreement, dated as of March 2, 1998, ____
among Entertainment Properties Trust, as
Borrower, EPT Downreit, Inc., as Subsidiary
Guarantor, The Bank of New York, as a Lender,
The Bank of Nova Scotia, New York Agency, as
a Lender, Goldman Sachs Mortgage Company, as
a Lender, Bank Leumi USA, as a Lender, The
Bank of New York, as Administrative Agent,
The Bank of Nova Scotia, New York Agency and
Goldman Sachs Mortgage Company, as Co-
Syndication Agents and The Bank of Nova
Scotia, New York Agency, and Goldman Sachs
Mortgage Company, as Co-Documentation Agents,
together with the Form of Note.
10.8 First Amendment to Credit Agreement, dated as ___
of March 18, 1998, among Entertainment
Properties Trust, as Borrower, EPT Downreit,
Inc., as Subsidiary Guarantor, The Bank of
New York, as a Lender, The Bank of Nova
Scotia, New York Agency, as a Lender, Goldman
Sachs Mortgage Company, as a Lender, Bank
Leumi USA, as a Lender, The Bank of New York,
as Administrative Agent, The Bank of Nova
Scotia, New York Agency and Goldman Sachs
Mortgage Company, as Co-Syndication Agents
and The Bank of Nova Scotia, New York Agency,
and Goldman Sachs Mortgage Company, as Co-
Documentation Agents.
10.9 Form of Indemnification Agreement entered into *
between the Company and each of its
trustees and officers (filed as Exhibit 10.8
to Amendment No. 1 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on October
28, 1997 and incorporated herein by
reference).**
10.10 1997 Share Incentive Plan (filed as Exhibit *
10.9 to Amendment No. 2 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on
November 5, 1997 and incorporated herein by
reference).**
10.11 Deferred Compensation Plan for Non-Employee *
Trustees (filed as Exhibit 10.10 to Amendment
No. 2 to the Company's Registration Statement
on Form S-11 and S-3 (Registration No. 333-
35281) filed on November 5, 1997 and
incorporated herein by reference).**
10.12 Annual Incentive Program (filed as Exhibit *
10.11 to Amendment No. 2 to the Company's
Registration Statement on Form S-11 and S-3
(Registration No. 333-35281) filed on
November 5, 1997 and incorporated herein by
reference).**
10.13 Employment Agreement with Robert L. Harris *
(filed as Exhibit 10.12 to Amendment No. 3 to
the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281)
filed on November 13, 1997 and incorporated
herein by reference).**
10.14 Employment Agreement with David M. Brain *
(filed as Exhibit 10.13 to Amendment No. 3 to
the Company's Registration Statement on Form
S-11 and S-3 (Registration No. 333-35281)
filed on November 13, 1997 and incorporated
herein by reference).**
21 Subsidiaries of the Company. ____
27 Financial Data Schedule. ____
_____________________________________________
* Incorporated by reference from previous filings.
** Management contracts or compensatory plans or arrangements
required to be identified by Item 13(a).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENTERTAINMENT PROPERTIES TRUST
By /s/ David M. Brain
David M. Brain, Chief
Financial Officer
Dated: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
SIGNATURE AND TITLE DATE
/s/ Peter C. Brown March 26, 1998
Peter C. Brown, Chairman of the Board
/s/ Robert L. Harris March 26, 1998
Robert L. Harris, President,
Chief Development
Officer and Trustee
/s/ David M. Brain March 26, 1998
David M. Brain,
Chief Financial Officer
/s/ Robert J. Druten March 26, 1998
Robert J. Druten, Trustee
/s/ Scott H. Ward March 26, 1998
Scott H. Ward, Trustee
/s/ Charles S. Paul March 26, 1998
Charles S. Paul, Trustee