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, 2002
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 1, 2002, there were 17,105,677 Common Shares of Beneficial Interest
outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(Dollars in thousands)
MARCH 31, 2002 DECEMBER 31, 2001
------------------- --------------------
ASSETS (UNAUDITED)
Rental properties, net $ 580,724 $ 515,972
Land held for development 14,677 14,308
Investment in real estate joint venture 12,398 12,479
Cash and cash equivalents 13,877 24,590
Restricted cash equivalents 6,495 6,495
Other assets 10,592 9,507
--------- ---------
Total assets $ 638,763 $ 583,351
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 2,238 $ 1,843
Dividend payable 8,125 6,659
Unearned rents 21 1,955
Long-term debt 313,467 314,766
--------- ---------
Total liabilities 323,851 325,223
Commitments and contingencies - -
Minority interest in consolidated subsidiary 15,070 -
Shareholders' equity:
Common Shares, $.01 par value; 50,000,000 shares authorized; 17,577,877
and 15,270,392 issued at March 31, 2002
and December 31, 2001 176 153
Additional paid-in-capital 322,392 279,603
Treasury Stock at cost: 472,200 shares in 2002 and 2001 (6,533) (6,533)
Loans to officers (3,525) (3,525)
Non-vested shares (926) (1,105)
Distributions in excess of net income (11,742) (10,465)
--------- ---------
Shareholders' equity 299,842 258,128
--------- ---------
Total liabilities and shareholders' equity $ 638,763 $ 583,351
========= =========
See accompanying notes to consolidated financial statements.
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended March 31,
2002 2001
------------- --------------
Rental revenue $ 15,796 $13,374
Property operating expense 71 -
General and administrative expense 522 563
Interest expense 5,733 4,998
Depreciation and amortization expense 2,898 2,574
-------- -------
Total expense 9,224 8,135
Income before minority interest and income from
unconsolidated joint venture 6,572 5,239
Equity in income of joint venture 375 569
Minority interest in earnings of consolidated
subsidiary (70) -
-------- -------
Net income $ 6,877 $ 5,808
======== =======
Net income per common share
Basic $ 0.43 $ 0.40
Diluted $ 0.42 $ 0.39
Shares used for computation (in thousands):
Basic 16,119 14,700
Diluted 16,396 14,719
Dividends per common share $ 0.475 $ 0.450
======== =======
See accompanying notes to consolidated financial statements.
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended March 31,
2002 2001
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 6,877 $ 5,808
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,898 2,574
Minority interest in earnings of consolidated subsidiary 70 -
Increase in other assets (1,102) (2,266)
Increase in accounts payable and accrued liabilities 395 567
Equity in income of Joint venture (375) (569)
Increase (decrease) in unearned rents (1,934) 6
-------- ---------
Net cash provided by operating activities 6,829 6,120
-------- ---------
INVESTING ACTIVITIES
Acquisition of rental properties (52,483) -
Investment in joint venture equity - (147)
Distributions from joint venture 456 469
Proceeds from sale of equity interest in joint venture - 1,445
Development and capitalized costs (369) (453)
-------- ---------
Net cash provided by (used in) investing activities (52,396) 1,314
-------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt facilities - 125,000
Principal payments on long-term debt (1,299) (119,628)
Funding of escrow deposits - (6,495)
Proceeds from issuance of common shares (net of costs of $279) 42,812 -
Distributions to shareholders (6,659) (6,478)
-------- ---------
Net cash provided by financing activities 34,854 (7,601)
-------- ---------
Net decrease in cash and cash equivalents (10,713) (167)
Cash and cash equivalents at beginning of period 24,590 5,948
-------- ---------
Cash and cash equivalents at end of period $ 13,877 $ 5,781
======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 8,125 $ 6,626
Transfer of land held for development to rental property $ - $ 866
Minority interest issued in exchange for rental property $ 15,000 $ -
See accompanying notes to consolidated financial statements.
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, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The consolidated balance sheet as of December 31, 2001 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, 2001.
CONCENTRATION OF RISK
American Multi-Cinema, Inc. (AMC) is the lessee of a substantial portion (71%)
of the megaplex theatre rental properties held by the Company at March 31, 2002
as a result of a series of sale leaseback transactions pertaining to a number of
AMC megaplex theatres. A substantial portion (approximately 74%) of the
Company's revenues, and its ability to make distributions to its shareholders,
will depend on rental payments by AMC under the leases, or its parent, AMC
Entertainment, Inc. (AMCE), as the guarantor of AMC's obligations under the
leases. AMC Entertainment, Inc. is a publicly held company (AMEX:AEN) and
accordingly, their financial information is publicly available.
3. PROPERTY ACQUISITION
On March 15, 2002, the Company acquired 5 megaplex theatres owned and operated
by Gulf States Theatres, located in New Orleans, LA. The aggregate purchase
price of $67.2 million was comprised of approximately $52 million in cash and
$15 million in common and preferred operating units issued by EPT Gulf States,
LLC, a subsidiary of the Company, to the seller of the property. The operating
units bear a 10% dividend yield and are convertible into 857,142 common shares
of the Company at the option of the holder. Simultaneously, AMC acquired the
remaining operations and assets of Gulf States and the Company executed a 20
year lease with AMC for each of the five theatres.
4. EARNINGS PER SHARE
The following table summarizes the Company's shares used for computation of
basic and diluted earnings per share:
Three months ended March 31, 2002
Income Shares Per Share
(numerator) (denominator) Amount
------------- -------------- ---------
Basic earnings:
Income available to common shareholders $6,877 16,119 $0.43
Effect of dilutive securities:
Stock options -- 127
Contingent shares from conversion of minority interest 70 150 (.01)
------------- -------------- ---------
Diluted earnings:
Net income $6,947 16,396 $0.42
------------- -------------- ---------
<Table>
<Caption>
Three months ended March 31, 2001
Income Shares Per Share
(numerator) (denominator) Amount
------------- -------------- ---------
Basic earnings:
Income available to common shareholders $5,808 14,700 $0.40
Effect of dilutive securities:
Stock options -- 19 (.01)
------------- -------------- ---------
Diluted earnings:
Net income $5,808 14,719 $0.39
------------- -------------- ---------
</Table>
5. COMMON SHARE OFFERING
On February 8, 2002, the company completed the issuance of 2.3 million common
shares for net proceeds of $42.8 million. The proceeds were used to fund the
acquisition of the 5 megaplex theatres described in note 3 to the consolidated
financial statements.
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, 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, 2001 incorporated by reference herein.
CRITICAL ACCOUNTING POLICIES
There have been no changes from the policies discussed in the Company's Annual
Report of Form 10-K for the year ended December 31, 2001 incorporated by
reference herein.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 2002 COMPARED TO THE THREE-MONTH PERIOD ENDED
MARCH 31, 2001
RENTAL REVENUE - Revenue from property rentals was $15.8 million for the three
months ended March 31, 2002 compared to $13.4 million for the three months ended
March 31, 2001. The $2.4 million increase resulted from three property
acquisitions
completed in 2001 ($0.6 million), the acquisition/consolidation of the remaining
third party interest of the Westcol joint venture ($1.1 million), property
acquisitions completed in March 2002 ($0.3 million), increases in percentage
rents ($0.2 million) and from rent increases on existing properties
($0.2 million).
PROPERTY OPERATING EXPENSE - Our property operating expenses totaled
$71 thousand for the three months ended March 31, 2002. These expenses arise
from the operations of Westcol Center, an entertainment and retail center in
Westminster CO., in which the Company acquired sole ownership in December 2001
by buying the remaining interest in the Westcol joint venture. For the same
period in 2001 the Company accounted for its partial interest in the Westcol
joint venture under the equity method of accounting, therefore, the company did
not recognize expenses related to the venture.
GENERAL AND ADMINISTRATIVE EXPENSE - Our general and administrative expenses
totaled $0.5 million for the three months ended March 31, 2002 compared to
$0.6 million for the same period in 2001. The decrease was attributed to the
proxy related expenses incurred in the prior year.
MINORITY INTEREST IN NET INCOME - For the three months ended March 31, 2002
minority interest in net income was $70 thousand, arising from the issuance of
$15 million of common and preferred interests by EPT Gulf States, LLC, our
consolidated subsidiary, as a result of the Gulf States theatres acquisition
completed on March 15, 2002. For the same period in 2001, the Company had no
minority interest outstanding.
DEPRECIATION AND AMORTIZATION EXPENSE - Our depreciation and amortization
expenses totaled $2.9 million for the three months ended March 31, 2002
compared to $2.6 million for the same period in 2001. The $0.3 million
increase resulted from the property acquisitions completed in 2001 and 2002.
NET INTEREST EXPENSE - The Company's net interest expense increased to $5.7
million for the three months ended March 31, 2001 from $5.0 million for the
three months ended March 31, 2001. The $0.7 million increase in net interest
expense resulted from an increase in long-term debt related to financings of
property acquisitions made during fiscal 2001.
INCOME FROM JOINT VENTURE - Income from joint ventures totaled $0.4 million for
the three months ended March 31, 2002 compared to $0.6 million for the same
period in 2001. The decrease was attributed to the acquisition of the remaining
third party interest in the Westcol joint venture in December 2001. During the
three-months ended March 31, 2001, the Company accounted for its interest in the
Westcol joint venture using the equity method of accounting, and for the
three-months ended March 31, 2002 the results of Westcol are shown on a
consolidated basis.
NET INCOME - Net income for the three months ended March 31, 2002 totaled $6.9
million as compared to $5.8 million for the three months ended March 31, 2001.
The increase in net income resulted from the $2.4 million increase in rental
revenue offset by increases in net interest expense ($0.7 million), depreciation
and amortization ($0.3 million), property operating expenses ($0.1 million) and
decreases in income from joint venture ($0.2 million).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $13.9 million at March 31, 2002. In addition, the
Company had restricted cash of $6.5 million available for debt service in
connection with the $122.7 million mortgage debt due in February 2006.
Mortgage Debt and Credit Facilities
As of March 31, 2002, we had total debt outstanding of $313.5 million. All of
our debt was mortgage debt secured by substantially all of our rental
properties. Of this debt, $54.0 million was variable rate debt and $259.5
million was fixed rate debt. The $313.5 million aggregate principal amount of
indebtedness had a weighted average interest rate of 7.4% as of March 31, 2002.
At March 31, 2002, we had $54 million outstanding under our $75 million credit
facility. The remaining $21 million available to borrow under that facility is
subject to the Company providing real estate as collateral security in exchange
for borrowing the remaining $21 million.
The Company has received a commitment from Fleet Bank for a $50 million secured
revolving credit facility. The Company expects to close on the facility during
the second quarter of 2002. The Company expects to use proceeds from the
facility for the acquisition of rental property and general corporate purposes.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring
corporate operating expenses, debt service requirements and distributions to
shareholders. At March 31, 2002, the Company had no unfunded acquisition or
development commitments. We anticipate that our cash on hand and cash from
operations will provide adequate liquidity to conduct operations, fund
administrative and operating costs and interest and principal payments on its
debt, 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.
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 defined as net income (computed in accordance with GAAP),
excluding extraordinary gains and losses from debt restructuring and gains and
losses from sales of depreciable operating properties, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships, joint
ventures and other affiliates. Adjustments for unconsolidated partnerships,
joint ventures and other affiliates are calculated to reflect FFO on the same
basis. FFO does not represent cash flows from operations as defined by GAAP and
is not indicative that cash flows are adequate to fund all cash needs and is not
to be considered an alternative to net income or any other GAAP measure as a
measurement of the results of the Company's operations or the Company's cash
flows or liquidity as defined by GAAP.
The following tables summarize the Company's FFO for the three month periods
ended March 31, 2002 and March 31, 2001 (in thousands):
Three months ended March 31,
2002 2001
------------- --------------
Net income $6,877 $5,808
Add: Real estate depreciation 2,732 2,499
Add: Allocated share of joint venture depreciation 139 205
------------- --------------
Basic Funds From Operations 9,748 8,512
Add: minority interest in net income 70 -
------------- --------------
Diluted Funds From Operations $9,818 $8,512
============= ==============
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 UNDER "BUSINESS - RISK FACTORS."
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS.
NEW ACCOUNTING PRONOUNCEMENT
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. While this
statement supersedes SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of", it retains many of the
fundamental provisions of that statement. This statement also supersedes the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. However, it retains
the requirement in Opinion No. 30 to report separately discontinued operations
and extends that reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. This statement is effective for fiscal years
beginning after December 15, 2001 and was adopted by the Trust on January 1,
2002. The adoption of SFAS 144 did not have a material impact on the Trust's
financial position or results of operations.
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. 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.
On February 5, 2002, a current report on Form 8-K was filed in order to file
as exhibit the underwriting agreement in connection with offering of the
Company's common shares.
On March 15, 2002, a current report on Form 8-K was filed in order to file
as exhibit a press release dated March 15, 2002 in connection with the
completed acquisition of 5 megaplex theatres from Gulf States.
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 13, 2002 By /s/ Fred L. Kennon
---------------------------------
Fred L. Kennon, Vice President -
Chief Financial Officer
Treasurer and Controller