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 June 30, 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 13,861,964 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) as of June 30, 1998
and March 31, 1998, and the period ended December 31, 1997. 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 AS OF
ASSETS JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997
Rental properties, net $357,907 $307,934 $213,813
Land held for development 5,360 3,773 -
Cash and cash equivalents 17,242 1,814 45,220
Other 5,120 2,399 456
Total assets $385,629 $315,920 $259,489
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and
accrued liabilities $ 1,825 $ 650 $ 2,524
Advisory fee payable - - 1,368
Notes payable under a
revolving line of
credit 21,000 57,000 -
Dividends payable 5,545 5,544 2,495
Unearned rents 2,709 2,403 1,875
Long term secured
credit facility 105,000 - -
Total liabilities 136,079 65,597 8,262
Shareholders' Equity:
Common shares of
beneficial interest,
$.01 par value;
50,000,000 shares
authorized; 13,861,964
shares issued and
outstanding 139 139 139
Preferred stock,
$.01 per share,
5,000,000 shares
authorized;
No shares issued or
outstanding - - -
Additional paid-in
capital 255,757 255,721 255,721
Loans to officers (2,400) (2,400) (2,400)
Non-vested stock (1,060) (1,120) (1,180)
Distributions in excess
of net income (2,886) (2,017) (1,053)
Total shareholders'
equity 249,550 250,323 251,227
Total liabilities
and shareholders'
equity $385,629 $315,920 $259,489
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Income
(Unaudited)
(Amounts in Thousands - Except per share and share amounts)
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
Rental income $ 14,909 $ 8,616
Expenses:
General and administrative expenses 1,208 643
Depreciation 3,038 1,750
Total expenses 4,246 2,393
Income from property operations 10,663 6,223
Interest income(expense), net (1,407) (1,547)
Net income 9,256 4,676
Basic and diluted earnings per common $ .67 $ .34
share
Weighted average number of shares 13,860,328 13,860,556
outstanding
Distribution declared per common $ .80 $ .40
share outstanding
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in Thousands)
SIX MONTHS ENDED
JUNE 30, 1998
OPERATING ACTIVITIES
Net income $ 9,256
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 3,178
Increase in other assets (4,690)
Increase in accounts payable
and accrued liabilities (663)
Decrease in advisory fee payable (1,368)
Increase in unearned rents 834
Net cash provided by operating
activities 6,547
INVESTING ACTIVITIES
Acquisitions of rental properties (147,126)
Acquisition of land held for development (5,360)
Net cash used in investing activities (152,486)
FINANCING ACTIVITIES
Increase in notes payable under revolving
line of credit 21,000
Increase in long-term secured credit
facility 105,000
Cash dividends paid (8,039)
Net cash provided by financing
activities 117,961
Net decrease in cash and cash equivalents (27,978)
Cash and cash equivalents at beginning
of period 45,220
Cash and cash equivalents at end of
period 17,242
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common
shareholders 5,545
Issuance of stock compensation to trustees 36
Notes to Consolidated Financial Statements
The preceding consolidated 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 subsidiaries,
EPT DownREIT, Inc and EPT DownREIT II, Inc. All significant
intercompany transactions have been eliminated in consolidation.
LINE OF CREDIT
At June 30, 1998, the Company had borrowings of $21 million under
its revolving credit facility with additional availability under
the facility of $129 million. During the quarter management
reduced the total available credit under this facility from $200
million to $150 million. This voluntary reduction was done as a
result of, and simultaneous to, the closing of the long-term
secured credit facility described below.
LONG-TERM SECURED CREDIT FACILITY
During the quarter ended June 30, 1998, the Company, through EPT
DownREIT II, Inc., a newly formed subsidiary, closed a $105
million long-term secured credit facility for which it pledged
eight of its megaplex theatre properties as collateral.
Borrowings under the new facility are amortized over a 30-year
period with principle and interest payable monthly at a coupon
rate of 6.77% and an effective rate of 7.07% adjusted for
amortization of capitalized debt acquisition costs and the
deferred hedging loss. The properties pledged as collateral
under the facility include: Grand 24, Dallas, Texas; Mission
Valley 20, San Diego, California; Promenade 16, Los Angeles,
California; Ontario Mills 30, Los Angeles, California; Huebner
Oaks, San Antonio, Texas; Lennox 24, Columbus, Ohio; West Olive
16, St. Louis, Missouri; and Studio 30, Houston, Texas. After
ten years, all cash flows from the properties pledged as
collateral are required to be applied to the repayment of
principal under the facility.
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 report involve risks and uncertainties, including those
relating to 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, THE STATEMENTS MADE
IN THIS REPORT ON FORM 10-Q CONSIST OF FORWARD-LOOKING STATEMENTS
AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. SUCH STATEMENTS ARE IDENTIFIED BY WORDS OR PHRASES SUCH AS
"SHOULD," "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 its largest tenant and
lease guarantor for its lease revenues and ability to make
distributions to its shareholders
. The Company's ability to diversify its portfolio
. Potential conflicts of interest involving the Company and
its largest 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
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS, AND ARE ENCOURAGED TO REVIEW THE RISK
FACTORS DISCUSSED UNDER THE CAPTION "CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION" IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AS WELL
AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS AND OTHER
FILINGS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 three-month period ended June 30, 1998, the Company
had net income of $4.68 million or $0.34 per share on rental
revenue of $8.62 million or $0.62 per share as compared to the
quarter ended March 31, 1998 in which 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 (FFO) for the quarter ended June 30, 1998
were $6.42 million or $0.46 per share as compared to $5.87
million or $0.42 per share for the quarter ended March 31, 1998.
Increases in revenue, net income, and FFO resulted from
acquisitions during the three-month period ended June 30, 1998,
as well as acquisitions made mid-period during the previous
quarter.
As of June 30, 1998, the Company had acquired all of the Initial
Properties identified in the Company's prospectus prepared in
connection with its initial public offering, as well as four of
the five Option Properties identified in the Company's
prospectus.
During the three-month period ended June 30, 1998 the Company
acquired two properties as follows.
On April 20, 1998, the Company acquired the Mesquite 30 megaplex
theatre from AMC Entertainment Inc. (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
which are complimentary to the movie going experience, such as
restaurants. First year rental on this megaplex theatre will
approximate $2.4 million.
On June 30, 1998, the Company acquired the Hampton Town Center 24
megaplex theatre from AMC Entertainment Inc. (or its
subsidiaries). Hampton Town Center 24 is located in Norfolk,
Virginia. The theatre seats approximately 5,098 in 107,396
square feet. The purchase price was $28.5 million. First year
rental on this megaplex theatre will approximate $2.99 million.
The lease terms on the two properties mentioned above include a
15 year term with four 5-year options and annual rental
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 including taxes and other
governmental charges, insurance, utilities, service, maintenance
and any ground lease payments.
The Company believes it will complete the acquisition of the
remaining Option Property described in its initial public
offering prospectus. The remaining megaplex theatre property
under contract is the Livonia 20 megaplex theatre located in
suburban Detroit, Michigan. The purchase price for Livonia 20 is
estimated to be approximately $27.5 million.
On June 29, 1998, the Company announced that it had signed a
definitive agreement with Real Estate Innovations, L.L.C. to
acquire its Raleigh Grand 16 megaplex theatre in Raleigh, North
Carolina for $8.375 million. In addition to the Raleigh Grand
16, the agreement includes the acquisition of three additional
megaplex theatres valued at $36.6 million. These theatres will
be operated by Consolidated Theatres.
Consolidated Theatres, based in Charlotte, North Carolina is a
regional movie exhibitor that operates six theatres with more
than 60 screens. It has more than 120 screens in development
throughout the southeast.
On July 10, 1998, the Company announced it had signed a
definitive agreement with Pompano Development Partners to acquire
its Pompano 18 megaplex theatre in Pompano Beach, Florida for
approximately $16 million. The agreement also contemplates the
acquisition of six additional megaplex theatres to be developed
over the next two years with an estimated value of $120 million.
Subsequently, on August 10, 1998, the Company acquired the
Pompano 18 megaplex theatre.
Pompano 18 is leased to Muvico Theatres Inc., a regional movie
exhibitor based in Fort Lauderdale, Florida. Muvico operates
seven theatres with 55 screens in Florida and has 250 screens
under development throughout the southeast.
On July 22, 1998, the Company announced it has signed a
definitive agreement with Sofran Powder Springs, Limited
Partnership to acquire the Powder Springs 22-screen, 5,100 seat
megaplex theatre in suburban Atlanta, Georgia for $15.5 million.
The purchase price includes three additional land parcels
adjacent to the theatre property.
The Powder Springs 22-screen theatre will be operated by Regal
Cinemas, based in Knoxville, Tennessee. According to publicly
available information, Regal Cinemas is a national movie
exhibitor that operates over 250 theatres in 28 states with more
than 2,400 screens.
The Company continues to see significant opportunities with a
number of megaplex theatres and other entertainment related real
estate properties.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $17.24 million in cash and
had drawn $21 million on its revolving line of credit in
conjunction with its acquisition of the Hampton Town Center
megaplex theatre.
The Company anticipates that its cash from operations and credit
available under the Revolving 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 available credit under the
Revolving Credit Facility, the Company intends to consider: (i)
making certain property acquisitions utilizing additional
issuance of the Company's securities as consideration in the
transaction(s); and (ii) conducting 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.
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 three and six-month
periods ended June 30, 1998 and the three-months ended March 31,
1998:
Six Months Three Months Three Months
Ended Ended Ended
6/30/98 6/30/98 3/31/98
Funds from operations (FFO)
Net Income $9,256 $4,676 $4,580
Add back real estate
depreciation $3,030 $1,744 $1,286
FFO $12,286 $6,420 $5,866
Basic and diluted FFO
per share $ .89 $ .46 $ .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. The Company's only computer software, other
than standard office automation software is its accounting
software. 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.
During the period ended June 30, 1998, the Company closed a
long-term secured credit facility, at which time it settled its
hedging position that it had entered to "lock in" an attractive
rate. During the term of the hedge, market rates fell resulting
in a hedge loss of $1.4 million. This hedge loss will be
amortized over the effective life of the long-term secured credit
facility.
The Company has entered into a hedging instrument in compliance
with its revolving credit facility. This hedging instrument is
for a notional value of $20 million and protects the Company
should London interbank offer rates rise above 9.25%. The
Company has no exposure under this hedging instrument should
rates fall.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May
13, 1998. The following items were submitted to a vote:
Item 1. Scott H. Ward was elected as a Class I trustee. Class
II trustees (Robert L. Harris and Robert J. Druten) and Class III
trustees (Peter C. Brown and Charles S. Paul) continue to serve
on the Board of Trustees until the Annual Meeting of Shareholders
in 1999 and 2000, respectively. The vote with respect to the
election of the Class I trustee was as follows:
Affirmative Withheld
Votes Authority
Scott H. Ward 10,241,667 33,865
Item 2. The selection of Ernst & Young LLP as the Company's
independent auditors for the year ending December_31, 1998 was
approved. The vote was as follows:
Affirmative Negative Withheld
Votes Votes Authority
10,242,007 6,875 26,650
A total of 10,275,532 shares were voted. No broker non-votes
were received.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
Exhibit No. Description
10.15 Loan Agreement, dated as of June 29, 1998 between EPT
DownREIT II, Inc., as Borrower and Archon Financial,
L.P., as Lender.
10.16 Promissory Note, dated as of June 29, 1998, issued by
EPT DownREIT II, Inc. in favor of Archon Financial,
L.P. in the original face amount of $105,000,000.
21 Subsidiaries of the Company.
27 Financial Data Schedule.
B. Reports on Form 8-K (all previously filed).
During the quarter ended June 30, 1998, the Company filed the
following reports on Form 8-K:
Form 8-K dated April 3, 1998
Item 2. Acquisition or disposition of assets - Acquisition
of Cantera 30 megaplex theatre in Chicago, Illinois.
Item 7. Financial Statements and Exhibits - Financial
Statements of Business Acquired; (b) Pro Forma Financial
Information; (c) Exhibits.
Form 8-K dated April 8, 1998
Item 5. Other Events - Announcement of acquisition of
Cantera 30 megaplex theatre.
Item 7. Exhibits - Press release, issued April 13, 1998.
Form 8-K dated April 21, 1998
Item 5. Other Events - Announcement of total income for
first quarter 1998.
Item 7. Press release, issued April 13, 1998.
Form 8-K dated April 27, 1998
Item 2. Acquisition or disposition of assets - Acquisition
of Mesquite 30 in Mesquite, Texas.
Item 7. Financial statements and exhibits - (a) Financial
statements of business acquired. (b) Pro forma financial
information. (c) Exhibits.
Form 8-K dated April 28, 1998
Item 5. Other Events - Announcement of acquisition of
Mesquite 30 megaplex.
Item 7. Exhibits - Press Release issued April 20, 1998.
Form 8-K dated May 29, 1998
Item 5. Other Events - Announcement of letters of intent
with operators and developers.
Item 7. Exhibits - Press release, issued May 27, 1998.
Form 8-K dated June 19, 1998
Item 5. Other Events - Announcement of second quarter
dividend for 1998.
Item 7. Exhibits - Press release, issued June 15, 1998.
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: August 13, 1998
/s/ David M. Brain
David M. Brain
Chief Financial Officer
Date: August 13, 1998
/a/ R. Scott Christian
R. Scott Christian
Treasurer