UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
( ) 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
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.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At May 7, 1998, there were 13,860,100 Common Shares of Beneficial
Interest outstanding.
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Following are the consolidated financial statements of
Entertainment Properties Trust (the Company) for the 3-month
period ended March 31, 1998. The Company began operations
concurrent with its initial public offering on November 18, 1997.
Consequently, there was no activity from prior fiscal year
comparable periods with which to compare.
ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(Unaudited)
(Amounts in Thousands)
AS OF AS OF
ASSETS MARCH 31, DECEMBER 31,
1998 1997
Rental properties, net $307,934 $213,813
Land held for development 3,773 -
Cash and cash equivalents 1,814 45,220
Other assets 2,399 456
Total assets $315,920 $259,489
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 650 $ 2,524
Advisory fee payable - 1,368
Notes payable under a revolving
line of credit 57,000 -
Dividends payable 5,544 2,495
Unearned rents 2,403 1,875
Total liabilities 65,597 8,262
Shareholders' Equity:
Common shares of beneficial
interest, $.01 par value;
50,000,000 shares authorized;
13,860,100 shares issued and
outstanding 139 139
Preferred stock, $.01 per share,
5,000,000 shares authorized;
No shares issued or outstanding - -
Additional paid-in capital 255,721 255,721
Loans to officers (2,400) (2,400)
Non-vested stock (1,120) (1,180)
Distributions in excess of net
income (2,017) (1,053)
Total shareholders' equity 250,323 251,227
Total liabilities and
shareholders' equity $315,920 $259,489
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Income
(Unaudited)
(Amounts in Thousands -- Except per share and share amounts)
THREE MONTHS ENDED
MARCH 31, 1998
Rental income $ 6,293
Expenses:
General and administrative expenses 565
Depreciation 1,288
Total expenses 1,853
Income from property operations 4,440
Interest income, net 140
Net income $ 4,580
Basic and diluted earnings per common share $ .33
Weighted average number of shares outstanding 13,860,100
Distribution declared per common share outstanding $ .40
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in Thousands)
THREE MONTHS ENDED
MARCH 31, 1998
OPERATING ACTIVITIES
Net income $ 4,580
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,357
Increase in other assets (1,953)
Decrease in accounts payable and
accrued liabilities (1,874)
Decrease in advisory fee payable (1,368)
Increase in unearned rents 528
Net cash provided by operating activities 1,270
INVESTING ACTIVITIES
Acquisitions of rental properties (95,408)
Acquisition of land held for development (3,773)
Net cash used in investing activities (99,181)
FINANCING ACTIVITIES
Increase in notes payable 57,000
Cash dividends paid (2,495)
Net cash provided by financing activities 54,505
Net decrease in cash and cash equivalents (43,406)
Cash and cash equivalents at beginning of period 45,220
Cash and cash equivalents at end of period $ 1,814
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 5,544
Notes to Consolidated Financial Statements
The preceding financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement
of the results for the interim period presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Entertainment Properties Trust and its wholly-owned subsidiary,
EPT DownREIT, Inc. All significant intercompany transactions
have been eliminated in consolidation.
OFF BALANCE SHEET ITEMS
On March 18, 1998, the Trust entered into a forward contract to
effectively create a fixed base rate of interest (5.63%) on a
portion of long-term debt agreement to be entered into on or
about June 15, 1998. On that date, the contract will be closed
and net cash settled. In the event that market interest rates
are higher or lower than 5.63% on the date of settlement, the
Trust will realize a gain or loss. The trust will defer and
amortize the resulting gain or loss over the term of the
long-term debt agreement as an adjustment to the interest cost,
effectively creating a fixed base rate of interest of 5.63%.
The fair value of this contract is $129,862 at March 31, 1998,
which is not recorded in the accompanying balance sheet. Fair
value is based on fees currently charged to enter into similar
instruments, taking into account the remaining terms of the
contract and the counterparty's credit standing, and the
estimated amount the Trust would receive or pay to terminate or
replace the contract at current market rates.
These instruments involve, to varying degrees, elements of credit
risk. The Trust reduces its risk of nonperformance under these
contracts by entering into those contracts with reputable
security dealers and/or investors and evaluating their financial
condition.
LINE OF CREDIT
At March 31, 1998, the Company had available an unsecured line of
credit in the amount of $200 million used for funding additional
property acquisitions. As of March 31, 1998, the remaining
amount available on this line of credit was $143 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements and
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
10Q 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-Q 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 diversify 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 was no
activity from prior fiscal year periods with which to compare.
During the 3-month period ended March 31, 1998, the Company had
net income of $4.58 million or $0.33 per share on rental revenue
of $6.29 million or $0.45 per share. Funds from operations were
$5.87 million or $0.42 per share. General and administrative
expenses approximated $565,000.
As of April 30, 1998, the Company had acquired all of the Initial
Properties identified in the Company's prospectus as well as
three of the five Option Properties identified in the Company's
prospectus. During the 3-month period ended March 31, 1998, the
Company made the following property acquisitions:
1) On February 2, 1998, the Company acquired the Gulf Pointe 30
megaplex theatre from AMC Entertainment Inc. (AMCE) (or its
subsidiaries). Gulf Pointe is a 30 screen theatre located
in Houston, Texas, capable of seating approximately 6,000.
The purchase price was $27.6 million. Additionally, three
pad sites adjacent to the theatre property were acquired for
$1.7 million. These pad sites will be marketed on a ground
lease or build-to-suit basis to businesses such as
restaurants which are complimentary to the movie going
experience. First year rental on this megaplex theatre will
be $2.7 million.
2) On March 9, 1998, the Company acquired the South Barrington
30 megaplex theatre from AMCE (or its subsidiaries). South
Barrington is a 30 screen theatre located in Chicago,
Illinois, capable of seating approximately 6,200. The
purchase price was $34.5 million. First year rental on this
megaplex theatre will be $3.6 million.
3) On March 31, 1998, the Company acquired the Cantera 30
megaplex theatre from AMCE (or its subsidiaries). Cantera
is a 30 screen theatre also located in Chicago, Illinois,
capable of seating approximately 6,200. The purchase price
was $35.0 million. Additionally, two pad sites adjacent to
the theatre property were acquired for $2.0 million. These
pad sites will be marketed on a ground lease or
build-to-suit basis to businesses such as restaurants which
are complimentary to the movie going experience. First year
rental on this megaplex theatre will be $3.7 million.
4) On April 20, 1998, the Company acquired the Mesquite 30
megaplex theatre from AMCE (or its subsidiaries). Mesquite
is a 30 screen theatre located in Dallas, Texas, capable of
seating approximately 6,000. The purchase price was $23.2
million. Additionally, two pad sites adjacent to the theatre
property were acquired for $1.5 million. These pad sites
will be marketed on a ground lease or build-to-suit basis to
businesses such as restaurants which are complimentary to
the movie going experience. First year rental on this
megaplex theatre will be $2.4 million.
The lease terms on the four properties listed above include a
15-year term with four 5-year options and annual escalators equal
to the lesser of 2% or the consumer price index. Each lease also
has a percentage rent feature that begins at a 6% natural break
subject to certain adjustments. Each lease is a triple net lease
requiring the lessee to pay all ongoing and capital costs during
the lease term.
The Company believes it will complete the acquisition of the
remaining Option Properties as described in its prospectus in the
second and fourth quarters of 1998. The two remaining megaplex
theatre properties under contract are the Hampton Town Center 24
and the Livonia 20. Estimated purchase prices are $26.1 million
and $27.5 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $1.81 million in cash and
had drawn $57.0 million on its revolving line of credit in
conjunction with its purchases of the South Barrington 30 and
Cantera 30 megaplex theatres.
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 generally 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 and subsequently drew $66
million more to fund its acquisitions of Cantera 30 and Mesquite
30 megaplex theatres. The Company anticipates it will draw an
additional $54 million over the course of 1998 to fund its
acquisition of the two remaining AMCE Option Properties. The
remaining credit availability of $59 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.
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 securities 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
reduce borrowings under the Bank Credit Facility, thereby
replenishing the available credit for future acquisitions.
Management is pursuing a long term secured credit facility in the
amount of $105 million which would be collateralized by certain
specific properties in its portfolio in order to take advantage
of the relatively low long term rates currently available in the
market place. This long term secured credit facility would
mitigate a significant portion of the interest rate risk
potentially associated with the Bank Credit Facility.
In conjunction with this long term debt issuance to be entered
into on or about June 15, 1998, the Company has entered into
forward contracts to effectively "lock down" its fixed rate on
this debt. Funds from this issuance of long term debt will be
used to 1) reduce the current balance on the revolving line of
credit, and 2) acquire additional entertainment related real
estate.
OTHER DATA
The Company believes that to facilitate a clear understanding of
the historical consolidated operating results, funds from
operations (FFO) should be examined in conjunction with net
income as presented in the Consolidated Financial Statements.
Funds from operations is considered by management as an
appropriate measure of the performance of an equity real estate
investment trust (REIT) because it is predicated on cash flow
analysis, which management believes is more reflective of the
value of real estate companies such as the Company rather than a
measure predicated on expenditures such as depreciation. FFO is
generally defined as net income plus certain non-cash items,
primarily depreciation of real estate properties. The following
table summarizes the Company's FFO for the 3-month period ended
March 31, 1998.
Funds from operations (FFO)
Net Income $4,580
Add back real estate depreciation 1,286
FFO $5,866
Basic and diluted FFO per share $ .42
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 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
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).
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).
Subsidiaries of the Company.
Financial Data Schedule.
B. Reports on Form 8-K (all previously filed).
During the quarter covered by this report, the Company filed
the following reports on Form 8-K:
Form 8-K dated March 2, 1998
Item 5. Other Events -- (a) Year-end results above
analyst expectations (b) Tax treatment for 1997
dividend (c) Addition of Houston theatre megaplex.
Item 7. Exhibits -- (a) Press release, issued January
22, 1998 (b) Press release, issued January 29, 1998
(c) Press release, issued February 2, 1998.
Form 8-K dated March 13, 1998
Item 5. Other Events -- (a) Closing of $200 Million
Credit Facility (b) Addition of Chicago Megaplex
Theatre.
Item 7. Exhibits -- (a) Press release, dated March 3,
1998 (b) Press release, dated March 4, 1998.
Form 8-K dated March 20, 1998
Item 5. Other Events -- Announcement of first quarter
dividend for 1998.
Item 7. Exhibits -- Press release, issued March 16,
1998.
Form 8-K dated March 24, 1998
Item 2. Acquisition or Disposition of Assets -
Addition of South Barrington 30 megaplex theatre
Item 7. Financial Statements and Exhibits - (a)
Financial statements of business acquired - (b) Pro
forma financial information (c) Exhibits
SIGNATURES
Pursuant to the requirements 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,
Registrant
Date: May 14, 1998 /s/ David M. Brain
__________________________________
David M. Brain
Chief Financial Officer
Date: May 14, 1998 /s/ R. Scott Christian
________________________________
R. Scott Christian
Treasurer