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 September 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 43-1790877
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) 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 October 31, 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 September 30,
1998 and December 31, 1997, and for the three and six month
periods ended September 30, 1998. The Company began operations
concurrent with the consummation of its initial public offering
on November 18, 1997. Consequently, there was no activity from
the prior fiscal year periods with which to compare.
ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(Unaudited)
(Amounts in Thousands)
AS OF AS OF
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
Rental properties, net $381,024 $213,813
Land held for development 5,954 -
Cash and cash equivalents 6,846 45,220
Other 4,718 456
Total assets $398,542 $259,489
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued
liabilities $ 705 $ 2,524
Advisory fee payable - 1,368
Dividends payable 5,545 2,495
Unearned rents 3,161 1,875
Notes payable 298 -
Revolving credit facility 35,000 -
Long term secured debt 104,852 -
Total liabilities 149,561 8,262
Shareholders' Equity:
Common stock, $.01 par value
50,000,000 shares authorized
13,861,964 and 13,860,100
shares issued and outstanding
at September 30, 1998 and
December 31, 1997, respectively 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
Loans to officers (2,400) (2,400)
Non-vested stock (1,000) (1,180)
Distributions in excess of
net income (3,515) (1,053)
Total shareholders' equity 248,981 251,227
Total liabilities and
shareholders' equity $398,542 $259,489
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(Unaudited)
(Amounts in Thousands -- Except per share and share amounts)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
Rental revenue $9,817 $24,725
Expenses:
General and administrative 561 1,768
Depreciation 1,959 4,997
Total expenses 2,520 6,765
Operating income 7,297 17,960
Interest expense, net 2,381 3,787
Net income $4,916 $14,173
Basic and diluted earnings
per common share $ .35 $ 1.02
Weighted average number
of shares outstanding 13,861,964 13,860,878
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in Thousands)
NINE MONTHS ENDED
SEPTEMBER 30, 1998
OPERATING ACTIVITIES
Net income $ 14,173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,207
Increase in other assets (4,308)
Decrease in accounts payable and accrued
liabilities (1,783)
Decrease in advisory fee payable (1,368)
Increase in dividend payable 3,050
Increase in unearned rents 1,286
Net cash provided by operating activities 16,257
INVESTING ACTIVITIES
Acquisitions of rental properties (172,192)
Acquisition of land held for development (5,954)
Net cash used in investing activities (178,146)
FINANCING ACTIVITIES
Borrowings under revolving credit facility 35,000
Borrowings under long-term secured credit facility 104,852
Borrowings under notes payable 298
Cash dividends paid (16,633)
Net cash provided by financing activities 123,517
Net decrease in cash and cash equivalents (38,374)
Cash and cash equivalents at beginning of period 45,220
Cash and cash equivalents at end of period 6,846
Supplemental Schedule of Noncash Activity
Declaration of dividend to common shareholders $ 5,545
Issuance of common stock to trustees for
directors fees 36
Notes to Consolidated Financial Statements
The accompanying financial statements as of September 30, 1998
and for the three and nine month periods then ended are
unaudited. The balance sheet as of December 31, 1997 has been
derived from the audited balance sheet as of that date. The
unaudited consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary to a fair
statement of the financial position and operating results for the
interim period presented. These financial statements should be
read in conjunction with the consolidated financial statements as
of December 31, 1997 and for the period then ended, and notes
thereto contained in the Company's Annual Report on form 10-K.
The results of operations for the interim periods shown are not
necessarily indicative of the expected results for the year
ending December 31, 1998.
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.
REVOLVING CREDIT FACILITY
At September 30, 1998, the Company had borrowings of $35 million
under its revolving credit facility with additional availability
under the facility of $115 million. During the second quarter of
fiscal 1998, 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 a $105 million long-term secured credit facility by
the Company's wholly-owned subsidiary, EPT DownReit II, Inc.
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 September 30, 1998, the
Company had net income of $4.9 million or $0.35 per share on
rental revenue of $9.8 million. For the nine months ended
September 30, 1998 the Company had net income of $14.2 million or
$1.02 per share on rental revenue of $24.7 million.
Funds from operations (FFO) for the quarter ended September 30,
1998 were $6.9 million or $0.49 per share. For the nine months
ended September 30, 1998, FFO was $14.2 million or $1.38 per
share.
Increases in revenue, net income, and FFO resulted from
acquisitions during the three-month period ended September 30,
1998, as well as acquisitions made mid-period during the previous
two quarters.
The Company has 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.
The Company expects to acquire 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.
During the three month period ended September 30, 1998, the
Company acquired two properties as follows:
On August 10, 1998, the Company acquired the Pompano 18 megaplex
theatre located in Pompano Beach, Florida. The 18 screen theatre
which seats approximately 3,400 is operated by Muvico Theaters,
Inc., a regional movie exhibitor based in Fort Lauderdale,
Florida. According to publicly available information, Muvico
Theaters, Inc. operates seven theatres with 55 screens in Florida
and has 250 screens under development throughout the southeast.
On August 20, 1998, the Company acquired the Raleigh Grand 16
megaplex theater located in Raleigh, North Carolina. The 16
screen theatre which seats approximately 2,596 in 51,450 square
feet is operated by Consolidated Theatres, Inc. According to
publicly available information, Consolidated is a regional movie
exhibitor based in Charlotte, North Carolina that operates six
theatres with more than 60 screens. It has more than 120 screens
in development throughout the southeast.
Both of the acquired properties mentioned above are leased to the
theatre operators under 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.
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.
It is anticipated that 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 September 30, 1998, the Company had $6.8 million in cash
and cash equivalents and had drawn $35 million under its
revolving credit facility in conjunction with its acquisition of
the Hampton Town Center, Pompano 18, and Raleigh Grand 16
megaplex theaters.
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 the
Company's securities which would be designed to raise capital for
current acquisition needs and reduce borrowings under the
revolving credit facility, thereby replenishing the available
credit for future acquisitions.
FUNDS FROM OPERATIONS
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.
FFO is considered by management as an appropriate measure of the
performance of an equity 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
nine-month periods ended September 30, 1998.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
Funds from
operations (FFO)
Net Income $4,916 $14,173
Add back real
estate depreciation $1,951 $ 4,982
FFO $6,867 $19,155
Basic and diluted
FFO per share $ .49 $ 1.38
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.
The Company intends to initiate formal communications with its
lessees to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company expects to address this issue with
these parties by early 1999, which is prior to any anticipated
impact from the issue. 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.
The Company closed a $105 million long-term secured credit
facility on June 29, 1998, 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 is being 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
Exhibit No. Description
27 Financial Data Schedule
B. Reports on Form 8-K (all previously filed).
During the quarter ended September 30, 1998, the Company
filed the following reports on Form 8-K:
Form 8-K dated July 13, 1998
Item 5. Other Events - Press release, issued July 10,
1998.
Form 8-K dated July 13, 1998
Item 5. Other Events - Press release, issued July 10,
1998.
Form 8-K dated July 16, 1998
Item 2. Acquisition or disposition of assets --
Acquisition of Hampton Town Center 24 in Norfolk, VA.
Form 8-K dated July 16, 1998
Item 7. Financial Statements and Exhibits - Press
release, issued July 14, 1998.
Form 8-K dated July 24, 1998
Item 5. Other Events -- Press release, issued July 22,
1998.
Form 8-K dated August 19, 1998
Item 5. Other Events -- Press release, issued July 31,
1998.
Form 8-K dated September 18, 1998
Item 5. Other Events -- Press release, issued
September 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: November 13, 1998
/s/ David M. Brain
David M. Brain
Chief Financial Officer
Date: November 13, 1998
/s/ Fred L. Kennon
Fred L. Kennon
Treasurer