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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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 No.)
of incorporation or organization)
30 PERSHING ROAD, SUITE 201
KANSAS CITY, MISSOURI 64108
(Address of principal executive office) (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. Yes [X]
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 5, 2000, there were 15,036,547 Common Shares of Beneficial Interest
outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(Dollars in thousands)
MARCH 31, 2000 DECEMBER 31, 1999
------------------- --------------------
ASSETS (UNAUDITED)
Rental properties, net $ 498,317 $ 466,406
Land held for development 11,617 12,300
Investment in real estate joint venture 12,273 9,117
Cash and cash equivalents 7,384 22,265
Notes receivable 406 406
Other assets 6,138 5,797
------------------- --------------------
Total assets $ 536,135 $ 516,291
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,498 $ 1,538
Dividend payable 6,616 6,273
Unearned rents 3,245 3,356
Long-term debt 258,602 238,737
------------------- --------------------
Total liabilities 269,961 249,904
Commitments and contingencies - -
Shareholders' equity
Common Shares, $.01 par value; 50,000,000 shares authorized;
15,191,747 and 15,091,964 shares issued at March 31, 2000
and December 31, 1999, respectively 152 151
Additional paid-in-capital 278,516 277,126
Treasury Stock at cost: 155,200 shares (2,136) (2,136)
Loans to officers (3,525) (2,400)
Non-vested shares (913) (805)
Distributions in excess of net income (5,920) (5,549)
------------------- --------------------
Shareholders' equity 266,174 266,387
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Total liabilities and shareholders' equity $ 536,135 $ 516,291
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ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended March 31,
2000 1999
------------- --------------
Rental revenue $ 13,700 $ 11,497
Income from joint venture 176 -
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Total revenue 13,876 11,497
General and administrative expense 494 582
Depreciation and amortization 2,696 2,325
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Income from operations 10,686 8,590
Interest expense 4,437 3,152
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Net income $ 6,249 $ 5,438
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Net income per common share
Basic $ 0.42 $ 0.39
Diluted $ 0.42 $ 0.39
Shares used for computation (in thousands):
Basic 14,973 13,814
Diluted 15,009 13,892
Dividends per common share $ 0.44 $ 0.42
============= ==============
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ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended March 31,
2000 1999
----------------- -------------------
OPERATING ACTIVITIES
Net income $ 6,249 $ 5,438
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,696 2,325
(Increase) decrease in other assets (352) 461
Increase (decrease)in accounts payable and accrued liabilities (40) 324
Increase (decrease) in unearned rents (111) 400
----------------- -------------------
Net cash provided by operating activities 8,442 8,948
INVESTING ACTIVITIES
Acquisition of rental properties (33,851) (7,601)
Investment in joint venture (3,156) -
Acquisition of development properties - (1,571)
----------------- -------------------
Net cash used in investing activities (37,007) (9,172)
FINANCING ACTIVITIES
Proceeds from long-term debt facilities 20,175 8,000
Principal payments on long-term debt (310) (298)
Common Shares issued to management 92 59
Distributions to shareholders (6,273) (5,545)
----------------- -------------------
Net cash provided by financing activities 13,684 2,216
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Net increase (decrease) in cash and cash equivalents (14,881) 1,992
Cash and cash equivalents at beginning of period 22,265 2,341
----------------- -------------------
Cash and cash equivalents at end of period $ 7,384 $ 4,333
================= ===================
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 6,616 $ 5,822
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1). ORGANIZATION
Entertainment Properties Trust (the "Company") is a Maryland real estate
investment trust (REIT) organized on August 29, 1997. The Company was formed to
acquire and develop entertainment properties including megaplex theatres and
entertainment-themed retail centers.
2). SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The consolidated balance sheet as of December 31, 1999 has been derived from the
audited consolidated balance sheet at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.
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.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ significantly from
such estimates and assumptions.
3). PROPERTY ACQUISITIONS
During the three month period ended March 31, 2000, the Company purchased the
Consolidated Cary Crossroads 20 screen megaplex theatre for an aggregate
purchase price of $14.6 million. In addition, the Company purchased the AMC Palm
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Promenade 24 screen theatre for an aggregate purchase price of $17.8 million.
These properties are subject to lease arrangements generally consistent with the
lease terms of the Company's other rental properties.
4). REAL ESTATE JOINT VENTURE
On June 30, 1999, the Company finalized a joint venture with Excel Legacy Corp.
(Amex: XLG), whereby the Company contributed certain undeveloped land parcels
with a carrying value of $8.7 million in exchange for a 50% interest in the real
estate joint venture, comprised of the undeveloped land parcels and the
Westminster AMC 24 screen theatre in Westminster, Colorado. The joint venture
intends to develop the properties as an entertainment-themed retail center. The
Company accounts for its investment in the real estate joint venture under the
equity method of accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company included in this quarterly report on Form
10-Q. The forward-looking statements included in this discussion and elsewhere
in this Form 10-Q involve risks and uncertainties, including anticipated
financial performance, business prospects, industry trends, anticipated capital
expenditures, performance of leases by tenants, 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 other expectations expressed in the Company's
forward-looking statements as a result of a number of factors including but not
limited to those discussed in this Item and in Item I - Business, in the
Company's Annual Report of Form 10-K for the year ended December 31, 1999
incorporated by reference herein.
RESULTS OF OPERATIONS
The Company's revenues, which consist of property rentals and income from a
joint venture, were $13.9 million for the three months ended March 31, 2000
compared to $11.5 million for the three months ended March 31, 1999. The
increase was due primarily to (i) the acquisition of rental properties and the
formation of the joint venture subsequent to March 31, 1999 ($2.3 million), and
(ii) contractual increases in base rents ($0.1 million).
General and administrative expense totaled $0.5 million for the three months
ended March 31, 2000 compared to $0.6 million for the three months ended March
31, 1999. The decrease was due primarily to reduced travel costs and shareholder
related expenses.
Net interest expense totaled $4.4 million for the three months ended March 31,
2000 compared to net interest expense of $3.2 million for the three months ended
March 31, 1999. The $1.2 million increase in net interest expense resulted
primarily from an increase in long-term debt incurred as a result of the
property acquisitions made subsequent to March 31, 1999 ($0.9 million) and the
impact of higher interest rates on the variable rate portion of the Company's
debt ($0.3 million).
Depreciation and amortization expense was $2.7 million for the three months
ended March 31, 2000 compared to $2.3 million for the three months ended March
31, 1999. The increase of $0.4 million resulted from the additional property
acquisitions made subsequent to March 31, 1999.
Net income for the three months ended March 31, 2000 totaled $6.2 million or
$0.42 per diluted share as compared to $5.4 million or $0.39 per diluted share
for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
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As of March 31, 2000, the Company had $7.4 million in cash and cash equivalents,
secured mortgage indebtedness of approximately $127 million, and unsecured
indebtedness of $132 million under the Bank Credit Facility. The $259 million
aggregate principal amount of mortgage and unsecured indebtedness bears interest
at a weighted average rate of 7.37%.
As of March 31, 2000, the Company had drawn $132 million under the Bank Credit
Facility. The remaining credit availability of $18 million will be utilized to
acquire additional entertainment properties and to fund operations, if needed.
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 90% of FFO
(provided that the Company may at all times pay the dividends required to
maintain its status as a REIT) and provisions governing the eligibility and
value of properties for borrowing base calculations.
The Company anticipates that its cash from operations and credit available 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 in accordance with Internal Revenue Code requirements for
qualification as a REIT and to avoid any corporate level federal income tax or
excise tax.
Future acquisitions will be made pursuant to the Company's investment objectives
and policies to maximize both current income and long-term growth in income. As
acquisition opportunities are presented that would cause the Company to exhaust
its equity capital and available credit under the Bank Credit Facility, the
Company intends to consider: (i) entering into joint ventures with other
investors to acquire or develop properties; (ii) issuing Company securities in
exchange for properties; and/or (iii) conducting a public offering or direct
placement of the Company's securities designed to raise capital for acquisitions
and/or reduce borrowings under the Bank Credit Facility, thereby replenishing
the available credit for future acquisitions. There can be no assurance these
objectives can be achieved. See the December 31, 1999 annual report on Form 10-K
for a discussion of the Company's capitalization strategies and capital
requirements for future growth.
The Company's liquidity requirements with respect to future acquisitions may be
reduced to the extent the Company is able to use common Shares as consideration
for such purchases. Accordingly, the Company has filed a registration statement
on Form S-4 with the Securities and Exchange Commission to register 5,000,000
Shares for issuance in exchange for the acquisition of additional properties as
such opportunities may arise.
The Company has also filed a shelf registration statement on Form S-3 with the
Securities and Exchange Commission for the purpose of registering 5,000,000
Shares which may be issued from time to time in public offerings or direct
placements with underwriters or institutional investors as such opportunities
may arise. On June 4, 1999, the Company completed the sale of 1,200,000 Shares
in connection with this shelf registration. The net proceeds of $20.9 million
were used to finance the acquisition of the Loews Woodridge 18 screen theatre,
the acquisition of the Muvico Tampa Palms 20 screen megaplex theatre, and reduce
the Company's debt under its Bank Credit Facility.
On October 6, 1999, the Company announced that the Board of Trustees approved
the repurchase of up to one million of its outstanding common Shares. As of
March 31, 2000, the Company had repurchased a total of 155,200 Shares in the
open market.
FUNDS FROM OPERATIONS
The Company believes that to facilitate a clear understanding of the historical
consolidated operating results, 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 net income, which includes non-cash
expenses, such as depreciation. FFO is generally defined as net income plus
certain non-cash items, primarily depreciation of real estate properties.
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The following tables summarize the Company's FFO for the three month periods
ended March 31, 2000 and March 31, 1999 (in thousands except per Share data):
Three months ended March 31,
2000 1999
-------------- -------------
Net income $ 6,249 $ 5,438
Real estate depreciation 2,624 2,248
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Funds From Operations $ 8,873 $ 7,686
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Basic FFO per share $ 0.59 $ 0.56
Diluted FFO per share $ 0.59 $ 0.55
Shares used for computation:
Basic 14,973 13,814
Diluted 15,009 13,892
FORWARD LOOKING INFORMATION
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 COMPANY'S DEPENDENCE ON ITS LARGEST TENANT AND LEASE GUARANTOR FOR A
SUBSTANTIAL PORTION OF ITS LEASE REVENUES AND ABILITY TO MAKE DISTRIBUTIONS
TO ITS SHAREHOLDERS
- - THE COMPANY'S CONTINUING ABILITY TO DIVERSIFY ITS PORTFOLIO
- - 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
- - AVAILABILITY OF CAPITAL FOR FUTURE EXPANSION o PERFORMANCE OF LEASE TERMS
BY TENANTS
- - GENERAL REAL ESTATE INVESTMENT RISKS
- - OTHER RISK AND UNCERTAINTIES
THESE AND OTHER RISKS ARE DISCUSSED IN GREATER DETAIL IN ITEM I-BUSINESS, IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999,
INCORPORATED HEREIN BY REFERENCE. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, primarily relating to potential losses
due to changes in interest rates on long-term debt. The Company seeks to
mitigate the effects of fluctuations in interest rates by matching the term of
new investments with new long-term fixed rate borrowings whenever possible.
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The Company is subject to risks associated with debt financing, including the
risk that existing indebtedness may not be refinanced or that the terms of such
refinancing may not be as favorable as the terms of current indebtedness. The
majority of the Company's borrowings are subject to mortgages or contractual
agreements which limit the amount of indebtedness the Company may incur.
Accordingly, if the Company is unable to raise additional equity or borrow money
due to these limitations, the Company's ability to acquire additional properties
may be limited.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
10.16 Mortgage and Security Agreement, Deed of Trust and Security Agreement
and Loan Agreement for secured loans aggregating $20.2 million to
3 Theatres, Inc. a wholly owned subsidiary of EPT DownREIT, Inc.
27 Financial Data Schedule.
99.1 Item I - Business - "Risk Factors" on pages 5-11 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
B. Reports on Form 8-K.
None.
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
Dated: May 8, 2000 By /s/ Fred L. Kennon
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Fred L. Kennon, Vice President - Chief
Financial Officer
Treasurer and Controller