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 September 30, 2001
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 November 1, 2001, there were 14,798,921 Common Shares of Beneficial Interest
outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Entertainment Properties Trust
Consolidated Balance Sheets
(Dollars in thousands)
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------- --------------------
ASSETS (UNAUDITED)
Rental properties, net $ 471,351 $ 460,537
Land held for development 10,710 12,258
Investments in real estate joint ventures 27,698 27,391
Cash and cash equivalents 10,066 5,948
Restricted cash equivalents 6,495 -
Notes receivable - 434
Other assets 9,593 6,966
------------------- --------------------
Total assets $ 535,913 $ 513,534
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,177 $ 1,499
Dividend payable 6,659 6,479
Unearned rents - 390
Long-term debt 269,505 244,547
------------------- --------------------
Total liabilities 277,341 252,915
Commitments and contingencies - -
Shareholders' equity
Common Shares, $.01 par value; 50,000,000 shares authorized; 15,271,121
and 15,195,926 shares issued at September 30, 2001
and December 31, 2000, respectively 153 152
Additional paid-in-capital 279,592 278,574
Treasury Stock at cost: 472,200 shares (6,533) (6,533)
Loans to shareholders (3,525) (3,525)
Non-vested shares (1,160) (575)
Distributions in excess of net income (9,955) (7,474)
------------------- --------------------
Shareholders' equity 258,572 260,619
------------------- --------------------
Total liabilities and shareholders' equity $ 535,913 $ 513,534
=================== ====================
Entertainment Properties Trust
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
------------- -------------- ---------------- -----------------
Rental revenue $ 13,651 $ 13,084 $ 40,462 $ 40,213
General and administrative expense 493 393 2,067 1,382
Depreciation and amortization 2,574 2,571 7,722 7,886
------------- -------------- ---------------- -----------------
Income from operations 10,584 10,120 30,673 30,945
Interest expense, net 5,102 4,840 14,949 13,896
Equity in income from joint ventures 572 576 1,707 1,501
------------- -------------- ---------------- -----------------
Net income $ 6,054 $ 5,856 $ 17,431 $ 18,550
============= ============== ================ =================
Net income per common share
Basic $ 0.41 $ 0.40 $ 1.18 $ 1.25
Diluted $ 0.41 $ 0.40 $ 1.18 $ 1.25
Shares used for computation (in thousands):
Basic 14,742 14,692 14,715 14,793
Diluted 14,803 14,728 14,742 14,829
Dividends per common share $ 0.45 $ 0.44 $ 1.35 $ 1.32
============= ============== ================ =================
Entertainment Properties Trust
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended September 30,
2001 2000
----------------- -------------------
OPERATING ACTIVITIES
Net income $ 17,431 $ 18,550
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 7,722 7,886
Compensation pertaining to common shares issued to trustees and
employees 54 92
Increase in other assets (2,225) (656)
Increase (decrease) in accounts payable and accrued liabilities (285) 1,131
Decrease in unearned rents (390) (150)
----------------- -------------------
Net cash provided by operating activities 22,307 26,853
INVESTING ACTIVITIES
Acquisition of rental properties (17,415) (37,027)
Net proceeds from contribution of rental properties to joint venture - 14,596
Net proceeds from sale of interest in joint venture 1,445 -
Investment in joint venture (1,752) -
Acquisition of development properties - (434)
Development and capitalized costs (1,136) -
----------------- -------------------
Net cash used in investing activities (18,858) (22,865)
FINANCING ACTIVITIES
Proceeds from long-term debt facilities 150,000 20,175
Principal payments on long-term debt (123,224) (14,991)
Purchase of common stock - (4,405)
Proceeds from issuance of common stock 119 -
Funding of escrow deposits (6,495) -
Distributions to shareholders (19,731) (19,413)
----------------- -------------------
Net cash used in financing activities 669 (18,634)
----------------- -------------------
Net increase (decrease) in cash and cash equivalents 4,118 (14,646)
Cash and cash equivalents at beginning of period 5,948 22,265
----------------- -------------------
Cash and cash equivalents at end of period $ 10,066 $ 7,619
================= ===================
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividends to common shareholders $ 6,659 $ 6,478
Transfer of land held for development to rental property $ 866 $ -
Contribution of rental property in exchange for equity interest
in real estate joint ventures $ - $ 18,157
Exchange of development property in connection with acquisition
of rental property $ 1,818 -
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 nine-month period ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001.
The consolidated balance sheet as of December 31, 2000 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, 2000.
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, Three Theatres, Inc. and Cantera 30, Inc. All significant
inter-company 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). LONG TERM DEBT
On February 14, 2001, the Company completed a $125 million debt private
placement, secured by nine megaplex theatre properties, the proceeds of which
were used primarily to retire borrowings under the $127 million Bank Credit
Facility. The debt carries a stated interest rate at September 30, 2001 of 8.26%
and matures on February 12, 2006.
On May 18, 2001, the Company completed a $50 million term debt facility, secured
primarily by first mortgages on four megaplex theatre properties. Additional
collateral for the facility includes certain land parcels owned by the Company.
As of September 30, 2001, $25 million was outstanding on the facility which
carries a variable interest rate of 7.1%. The facility has an initial term of
three years with two one-year extensions. Proceeds from the facility will be
used for additional real estate acquisitions and general operating purposes.
4). REAL ESTATE JOINT VENTURES
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. The joint venture is structured as a partnership.
On May 11, 2000, the Company completed the formation of a joint venture with
Atlantic of Hamburg, Germany ("Atlantic"), whereby the Company contributed the
AMC Cantera 30 theatre with a carrying value of $33.5 million in exchange for
cash proceeds from mortgage financing of $17.85 million and a 100% interest in
the venture. During 2000 and 2001, the Company sold to Atlantic a total of a 16%
interest in the venture in exchange for $2.8 million in cash. It is expected
that Atlantic will acquire up to an additional 64% 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 its
interest. The Company accounts for its investment in the real estate joint
venture under the equity method of accounting. The joint venture is structured
as a limited liability company (LLC).
5). PROPERTY ACQUISITIONS
During the three-month period ended September 30, 2001, the Company executed its
purchase option for the acquisition of ground leased land underlying the 24
screen Oakview, NE megaplex theatre which was originally purchased in 1997. The
theatre land acquisition was subsequently completed in October 2001 for an
aggregate cost of $5.2 million.
6). OPERATING SEGMENT
The Company aggregates the financial information of all its properties into one
reportable segment because the properties all have similar economic
characteristics and provide similar services to similar types and classes of
customers.
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 and Notes thereto 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, anticipated capital expenditures,
industry trends, shareholder returns, performance of leases by tenants 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 - Risk Factors",
in the Company's Annual Report of Form 10-K for the year ended December 31, 2000
incorporated by reference herein.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE-MONTH PERIOD
ENDED SEPTEMBER 30, 2000
RENTAL REVENUE - Revenue from property rentals was $13.7 million for the three
months ended September 30, 2001 compared to $13.1 million for the three months
ended September 30, 2000. The $0.6 million increase resulted from two property
acquisitions completed in 2001 ($0.4 million), and from rent increases on
existing properties ($0.2 million).
GENERAL AND ADMINISTRATIVE EXPENSE - The Company's general and administrative
expenses totaled $0.5 million for the three months ended September 30, 2001
compared to $0.4 million for the same period in 2000. The increase was
attributed to increased business development expenses compared to the prior year
and increases in property tax accruals.
NET INTEREST EXPENSE - The Company's net interest expense increased to $5.1
million for the three months ended September 30, 2001 from $4.8 million for the
three months ended September 30, 2000. The $0.3 million increase in net interest
expense resulted from an increase in long-term debt related to financings of
property acquisitions made during fiscal 2001.
NET INCOME - Net income for the three months ended September 30, 2001 totaled
$6.1 million as compared to $5.9 million for the three months ended September
30, 2000. The increase in net income was resulted from increased rental revenue
of $0.6 offset by increases in general and administrative expense ($0.1 million)
and the increase in net interest expense ($0.3 million).
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 2000
RENTAL REVENUE - Rental revenues totaled $40.5 million for the nine months ended
September 30, 2001 compared to $40.2 million for the nine months ended September
30, 2000. Increases in the current period of approximately $1.7 million from
rent increases, property acquisitions and additional pad site lease revenue were
partially offset by the effect of the contribution of the Cantera 30 property to
the Atlantic-EPR joint venture in May 2000 ($1.5 million), which is accounted
for under the equity method of accounting whereby the Company's proportional
share of net income is recognized as income rather than the actual rental
revenue of the underlying properties.
GENERAL AND ADMINISTRATIVE EXPENSE - General and administrative expense totaled
$2.1 million and $1.4 million for the nine months ended September 30, 2001 and
2000. The increase of $0.7 million was due primarily to shareholder related
expenses incurred in a proxy contest described in Part II - Item 4 "Submission
of Matters to a vote of Security Holders".
DEPRECIATION AND AMORTIZATION EXPENSE - Depreciation and amortization expense
decreased to $7.7 million for the nine months ended September 30, 2001 compared
to $7.9 million for the nine months ended September 30, 2000. The $0.2 million
decrease in depreciation and amortization was primarily due to the effect of the
contribution of the Cantera 30 property to the Atlantic-EPR joint venture, which
is accounted for under the equity method of accounting whereby the Company's
proportional share of property depreciation from the joint venture is not
included as a direct expense to the Company.
NET INTEREST EXPENSE - Net interest expense totaled $14.9 million for the nine
months ended September 30, 2001 compared to net interest expense of $13.9
million for the nine months ended September 30, 2000. The increase of $1.0
million in interest expense resulted from the increase in long-term debt
incurred as a result of property acquisitions made during 2001 and fees and
expenses associated with the Companies new long-term debt facilities that are
amortized through interest expense over the life of the debt.
EQUITY IN INCOME FROM JOINT VENTURES - Joint venture income for the nine months
ended September 30, 2001 totaled $1.7 million as compared to $1.5 million for
the nine months ended September 30, 2000. The $0.2 million increase in joint
venture income was the result of the full nine months of joint venture
operations during the current year compared to 5 months of operations in the
same period last year.
NET INCOME - Net income for the nine months ended September 30, 2001 totaled
$17.4 million as compared to $18.6 million for the nine months ended September
30, 2000. The decline of $1.2 million was primarily the result of higher general
and administrative costs ($0.7) and the increase in net interest expense ($1.0
million).
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Company had $10.1 million in cash and cash
equivalents, $6.5 million in restricted cash escrows available to service debt
under the Company's $125 million secured mortgage debt issue completed in
February, 2001, and secured mortgage indebtedness of approximately $270 million.
As of September 30, 2001, the aggregate fixed rate mortgage indebtedness of $245
million had a weighted average coupon rate of 7.6% and the variable rate
mortgage indebtedness of $25 million had a weighted average coupon rate of 7.1%.
On February 14, 2001, the Company completed a $125 million debt private
placement, secured by nine megaplex theatre properties, the proceeds of which
were used primarily to retire borrowings under the $127 million Bank Credit
Facility.
The Company anticipates that its cash from operations will provide adequate
liquidity to conduct its operations, fund administrative and operating costs and
debt service requirements 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, 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. There can be no assurance
these objectives can be achieved. See the December 31, 2000 annual report on
Form 10-K for a discussion of the Company's capitalization strategies and
capital requirements for future growth.
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.
Comparison of our presentation of FFO, using the definition adopted by the
National Association of Real Estate Investment Trusts (NAREIT), to similarly
titled measures for other REITs may not necessarily be meaningful due to
possible differences in the application of the NAREIT definition used by such
REITs.
The following tables summarize the Company's FFO for the three and nine month
periods ended September 30, 2001 and September 30, 2000 (in thousands):
Three months ended September 30, Nine months ended September 30,
2001 2000 2001 2000
----------- ------------- ------------ -------------
Net income $6,054 $5,856 $17,431 $18,550
Real estate depreciation including
depreciation from unconsolidated joint ventures 2,705 2,709 8,113 7,980
----------- ------------- ------------ -------------
Funds From Operations $8,759 $8,565 $25,544 $26,530
=========== ============= ============ =============
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 THOSE DISCUSSED IN ITEM I-"BUSINESS - RISK FACTORS" IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits.
None
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: November 9, 2001 By /s/ Fred L. Kennon
---------------------
Fred L. Kennon, Vice President
- Chief Financial Officer
Treasurer and Controller