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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 June 30, 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 August 1, 2000, there were 14,679,547 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)
JUNE 30, 2000 DECEMBER 31, 1999
------------------- --------------------
ASSETS (UNAUDITED)
Rental properties, net $ 465,535 $ 466,406
Land held for development 11,460 12,300
Investments in real estate joint ventures 27,274 9,117
Cash and cash equivalents 17,789 22,265
Notes receivable 434 406
Other assets 5,478 5,797
------------------- --------------------
Total assets $ 527,970 $ 516,291
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,802 $ 1,538
Dividend payable 6,516 6,273
Unearned rents 3,269 3,356
Long-term debt 253,265 238,737
------------------- --------------------
Total liabilities 264,852 249,904
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 June 30, 2000
and December 31, 1999, respectively 152 151
Additional paid-in-capital 278,516 277,126
Treasury Stock at cost: 382,200 shares and 155,200 at
June 30, 2000 and December 31, 1999, respectively (5,234) (2,136)
Loans to officers (3,525) (2,400)
Non-vested shares (800) (805)
Distributions in excess of net income (5,991) (5,549)
------------------- --------------------
Shareholders' equity 263,118 266,387
------------------- --------------------
Total liabilities and shareholders' equity $ 527,970 $ 516,291
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Entertainment Properties Trust
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------- -------------- ------------- -------------
Rental revenue $ 13,429 $ 12,006 $ 27,129 $ 23,503
Income from joint ventures 750 - 926 -
------------- -------------- ------------- -------------
Total revenue 14,179 12,006 28,055 23,503
General and administrative expense 495 611 990 1,193
Depreciation and amortization 2,619 2,447 5,315 4,772
------------- -------------- ------------- -------------
Income from operations 11,065 8,948 21,750 17,538
Interest expense, net 4,619 3,431 9,056 6,583
------------- -------------- ------------- -------------
Net income $ 6,446 $ 5,517 $ 12,694 $ 10,955
============= ============== ============= =============
Net income per common share
Basic $ 0.43 $ 0.39 $ 0.85 $ 0.78
Diluted $ 0.43 $ 0.39 $ 0.85 $ 0.78
Shares used for computation (in thousands):
Basic 14,907 14,183 14,940 14,000
Diluted 14,943 14,261 14,976 14,077
Dividends per common share $ 0.44 $ 0.42 $ 0.88 $ 0.84
============= ============== ============= =============
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Entertainment Properties Trust
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
2000 1999
--------------- --------------
OPERATING ACTIVITIES
Net income $ 12,694 $ 10,955
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,315 4,772
(Increase) decrease in other assets 271 (133)
Increase in accounts payable and accrued liabilities 317 1,079
Increase (decrease) in unearned rents (87) 48
--------------- --------------
Net cash provided by operating activities 18,510 16,721
INVESTING ACTIVITIES
Acquisition of rental properties (37,027) (29,003)
Net proceeds from contribution of rental properties to joint venture 15,412 -
Acquisition of development properties - (3,228)
--------------- --------------
Net cash used in investing activities (21,615) (32,231)
FINANCING ACTIVITIES
Proceeds from long-term debt facilities 20,175 8,000
Principal payments on long-term debt (5,647) (583)
Issuance (purchase) of common shares (3,098) 20,972
Common shares issued to management 92 114
Distributions to shareholders (12,893) (11,367)
--------------- --------------
Net cash provided by (used in) financing activities (1,371) 17,136
--------------- --------------
Net increase (decrease) in cash and cash equivalents (4,476) 1,626
Cash and cash equivalents at beginning of period 22,265 2,341
--------------- --------------
Cash and cash equivalents at end of period $ 17,789 $ 3,967
=============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 6,516 $ 6,336
Contribution of rental property in exchange for equity interest
in real estate joint ventures $ 18,157 $ 8,658
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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 six month period ended June 30, 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., EPT
DownReit II, Inc. and 3 Theatres, 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 six month period ended June 30, 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
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 May 11, 2000, the Company completed the formation of a joint venture with
Atlantic of Hamburg, Germany, whereby the Company contributed the AMC Cantera
theatre with a carrying value of $33.5 million in exchange for cash proceeds
from
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mortgage financing of $17.85 million and a 100% interest in the joint venture.
The Company subsequently sold to Atlantic a 10% initial interest in exchange for
a $1.4 million in cash. It is expected that Atlantic will acquire up to an
additional 70% interest in the joint venture by selling securities to German
investors, with the proceeds of those sales to be contributed to the Venture and
then paid to the Company in reduction of it's interest. 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 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
SECOND QUARTER RESULTS
The Company's revenues, which consist of property rentals and income from a
joint ventures, were $14.2 million for the three months ended June 30, 2000
compared to $12.0 million for the three months ended June 30, 1999. The increase
was due primarily to the acquisition of rental properties ($1.4 million) and the
formation of joint ventures subsequent to June 30, 1999, which generated income
of $0.8 million.
General and administrative expense totaled $0.5 million for the three months
ended June 30, 2000 compared to $0.6 million for the three months ended June 30,
1999. The decrease was due primarily to reduced personnel, travel costs and
shareholder related expenses.
Net interest expense totaled $4.6 million for the three months ended June 30,
2000 compared to net interest expense of $3.4 million for the three months ended
June 30, 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 June 30, 1999 ($0.8 million) and the
impact of higher interest rates on the variable rate portion of the Company's
debt ($0.4 million).
Depreciation and amortization expense was $2.6 million for the three months
ended June 30, 2000 compared to $2.4 million for the three months ended June 30,
1999. The increase of $0.2 million resulted from the additional property
acquisitions made subsequent to June 30, 1999.
Net income for the three months ended June 30, 2000 totaled $6.4 million or
$0.43 per diluted share as compared to $5.5 million or $0.39 per diluted share
for the three months ended June 30, 1999.
YEAR-TO-DATE RESULTS
Revenues totaled $28.1 million for the six months ended June 30, 2000 compared
to $23.5 million for the six months ended June 30, 1999. The increase of $4.6
million was due to the acquisition of three rental properties subsequent to June
30, 1999 ($2.7 million), the formation of joint ventures ($0.9 million) and
contractual increases in base rents and a full six months of rent for megaplex
theatres purchased during the first six months of 1999 ($1.0 million).
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General and administrative expense totaled $1.0 million and $1.2 million for the
six months ended June 30, 2000 and 1999. The decrease of $0.2 million was due
primarily to reduced personnel costs related to the Company's Los Angeles,
California office which was closed in December 1999.
Net interest expense totaled $9.1 million for the six months ended June 30, 2000
compared to net interest expense of $6.6 million for the six months ended June
30, 1999. The increase of $2.5 million in interest expense resulted primarily
from the increase in long-term debt incurred as a result of property
acquisitions made during 1999 and 2000.
Depreciation and amortization expense was $5.3 million for the six months ended
June 30, 2000 compared to $4.8 million for the six months ended June 30, 1999.
The $0.5 million increase in depreciation and amortization resulted from the
mid-year property acquisitions made during 1999 and property acquisitions made
subsequent to June 30, 1999.
Net income for the six months ended June 30, 2000 totaled $12.7 million or $0.85
per diluted share as compared to $11.0 million or $0.78 per diluted share for
the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $17.8 million in cash and cash equivalents,
secured mortgage indebtedness of approximately $126 million, and unsecured
indebtedness of $127 million under the Bank Credit Facility. The $253 million
aggregate principal amount of mortgage and unsecured indebtedness bears interest
at a weighted average rate of 7.70%.
As of June 30, 2000, the Company had drawn $127 million under the $150 million
Bank Credit Facility. The Company is currently in negotiations with the Lenders
party to the Bank Credit Facility to amend some of its terms including easing
existing restrictions on the amount of secured indebtedness that can be obtained
by the Company and reducing the size of the Facility. These amendments may be
accompanied by an increase in the cost of borrowings under the Facility.
The Company anticipates that its cash from operations, credit available under
the Bank Credit Facility and funds from the Atlantic joint venture discussed
above will provide adequate liquidity to conduct its operations, fund
administrative and operating costs, interest payments, planned property
development costs, 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 any available credit under the Bank Credit Facility, the
Company intends to consider: (i) entering into additional 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. 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 and Item 1 - Business, in
that report for a discussion of Risk Factors that may affect our ability to
raise additional capital.
Although the Company has not experienced any lease defaults by tenants, recent
adverse conditions in the motion picture exhibition industry (including the
effects of obsolete multiplex theatres and the costs of building megaplex
theatres on exhibitor's operating results and financial statements) and
resulting pressures on the share prices of the publicly-held theatre operators
may make it more difficult for the Company to obtain financing on favorable
terms in the near term. The company believes that long-term prospects for the
leading theatre operators remain positive and that the fundamentals of it's
investment and leasing strategies remain sound.
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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. None of these Shares have been issued as of the
date of this report.
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 June
30, 2000, the Company had repurchased a total of 382,200 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.
The following tables summarize the Company's FFO for the three month periods
ended June 30, 2000 and June 30, 1999 (in thousands except per Share data):
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
-------------- ------------- ------------ -------------
Net income $ 6,446 $ 5,517 $ 12,694 $ 10,955
Real estate depreciation 2,546 2,337 5,172 4,585
-------------- ------------- ------------ -------------
Funds From Operations $ 8,992 $ 7,854 $ 17,866 $ 15,540
============== ============= ============ =============
Basic FFO per share $ 0.60 $ 0.55 $ 1.20 $ 1.11
Diluted FFO per share $ 0.60 $ 0.55 $ 1.19 $ 1.10
Shares used for computation:
Basic 14,907 14,183 14,940 14,000
Diluted 14,943 14,261 14,976 14,077
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 AND THE COMPANY'S ABILITY TO OBTAIN
FINANCING ON FAVORABLE TERMS
- - - TAX RISKS ARISING FROM THE COMPANY'S CONTINUING ABILITY TO QUALIFY AS A
REIT
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- - - INTEREST RATES AND AVAILABILITY OF DEBT FINANCING
- - - AVAILABILITY OF CAPITAL FOR FUTURE EXPANSION
- - - 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.
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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
27 Financial Data Schedule.
99(a) 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: August 11, 2000 By /s/ Fred L. Kennon
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Fred L. Kennon, Vice President -
Chief Financial Officer
Treasurer and Controller