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, 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
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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, 2002, there were 17,182,279 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, 2002 DECEMBER 31, 2001
------------------ -----------------
ASSETS (UNAUDITED)
Rental properties, net $ 649,602 $ 515,972
Land held for development 15,954 14,308
Investment in real estate joint venture 9,635 12,479
Cash and cash equivalents 19,220 24,590
Restricted cash equivalents 6,495 6,495
Other assets 12,091 9,507
--------- ---------
Total assets $ 712,997 $ 583,351
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,556 $ 1,843
Common dividend payable 8,160 6,659
Preferred dividend payable 1,366 --
Unearned rents 136 1,955
Long-term debt 332,947 314,766
--------- ---------
Total liabilities 344,165 325,223
Commitments and contingencies - -
Minority interest in consolidated subsidiary 15,375 -
Shareholders' equity:
Common Shares, $.01 par value; 50,000,000 shares authorized; 17,650,545
and 15,270,392 shares issued at September 30, 2002
and December 31, 2001, respectively 177 153
Preferred Shares, $.01 par value; 5,000,000 shares authorized;
2,300,000 and no shares issued at September 30, 2002
and December 31, 2001, respectively 23 -
Additional paid-in-capital 379,334 279,603
Treasury Stock at cost: 472,200 shares (6,533) (6,533)
Loans to shareholders (3,525) (3,525)
Non-vested shares (1,739) (1,105)
Distributions in excess of net income (14,280) (10,465)
--------- ---------
Shareholders' equity 353,457 258,128
--------- ---------
Total liabilities and shareholders' equity $ 712,997 $ 583,351
========= =========
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,
2002 2001 2002 2001
-------- -------- -------- --------
Rental revenue $ 18,797 $ 13,651 $ 51,582 $ 40,462
Property operating expense 25 -- 171 --
General and administrative expense 589 493 1,679 2,067
Net interest expense 6,278 5,102 17,895 14,949
Depreciation and amortization 3,658 2,574 9,804 7,722
Gain on sale of real estate 202 -- 202 --
Equity in income from joint venture 339 572 1,100 1,707
-------- -------- -------- --------
Income from operations 8,788 6,054 23,335 17,431
Minority interest expense 375 -- 820 --
-------- -------- -------- --------
Net income $ 8,413 $ 6,054 $ 22,515 $ 17,431
Preferred dividend requirement (1,366) -- (1,860) --
-------- -------- -------- --------
Net income available to common shareholders $ 7,047 $ 6,054 $ 20,655 $ 17,431
======== ======== ======== ========
Net income per common share
Basic $ 0.41 $ 0.41 $ 1.23 $ 1.18
Diluted $ 0.41 $ 0.41 $ 1.22 $ 1.18
Shares used for computation (in thousands):
Basic 17,165 14,742 16,805 14,715
Diluted 18,183 14,803 17,589 14,742
Dividends per common share: $ 0.475 $ 0.45 $ 1.425 $ 1.35
======== ======== ======== ========
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
Nine Months Ended September 30,
2002 2001
---------- ----------
OPERATING ACTIVITIES
Net income $ 22,515 $ 17,431
Adjustments to reconcile net income to net cash
provided by operating activities
Minority owner's interest in net income 375 -
Gain on sale of land held for development (202) -
Depreciation and amortization 9,804 7,722
Common shares issued to management and trustees 54 54
(Increase) decrease in other assets (2,188) 580
Decrease in accounts payable and accrued liabilities (279) (285)
Equity in income from joint venture (1,100) (1,707)
Decrease in unearned rents (1,819) (390)
---------- ----------
Net cash provided by operating activities 27,160 23,405
---------- ----------
INVESTING ACTIVITIES
Acquisition of rental properties (131,489) (17,415)
Capital Contribution to Westcol joint venture - (1,449)
Proceeds from sale of land 3,533 -
Distributions from joint venture 1,347 1,404
Proceeds from sale of equity interest in Atlantic joint venture 2,186 1,445
Development and capitalized costs (1,270) (1,136)
---------- ----------
Net cash used in investing activities (125,693) (17,151)
---------- ----------
FINANCING ACTIVITIES
Proceeds from debt facilities 22,000 150,000
Principal payments on long-term debt (3,819) (123,224)
Funding of escrow deposits - (6,495)
Increase in capitalized financing fees (88) (2,805)
Proceeds from issuance of common shares, net of costs 43,069 119
Proceeds from issuance of preferred shares, net of costs 55,435 -
Distributions to preferred shareholders (494) -
Distributions to common shareholders (22,940) (19,731)
---------- ----------
Net cash provided (used) by financing activities 93,163 (2,136)
---------- ----------
Net increase (decrease) in cash and cash equivalents (5,370) 4,118
Cash and cash equivalents at beginning of period 24,590 5,948
---------- ----------
Cash and cash equivalents at end of period $ 19,220 $ 10,066
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY:
Declaration of dividend to common shareholders $ 8,160 $ 6,659
Declaration of dividend to preferred shareholders $ 1,366 $ -
Transfer of land held for development to rental property $ - $ 866
Minority interest issued in exchange for rental property $ 15,000 $ -
Sale of equity interest in joint venture for receivable $ 411 $ -
Exchange of development property in connection with acquisition
of rental property $ - $ 1,818
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during nine-month period for interest $ 17,383 $ 14,549
Issuance of non-vested stock grants to management $ 1,219 $ 832
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 and nine-month periods
ended September 30, 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 (74%)
of the megaplex theatre rental properties held by the Company at September 30,
2002 as a result of a series of sale leaseback transactions pertaining to a
number of AMC megaplex theatres. A substantial portion (approximately 76%) 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior quarter amounts to conform
to the current quarter presentation.
3. PROPERTY ACQUISITIONS
During the three months ended September 30, 2002, the Company completed
approximately $26 million of property acquisitions. On August 11, 2002, the
Company acquired the Livonia, MI, AMC 20 screen megaplex theatre from AMC for a
cash purchase price of $22 million. The property is leased to AMC under a 20
year triple net lease. On July 22, 2002, the Company acquired the land in Little
Rock, AR, underlying an 18 screen megaplex theatre being constructed by Rave
Motion Pictures, for a cash purchase price of $3.8 million. Rave Motion Pictures
is obligated to pay rent on the land during
construction. The company expects to purchase the building and improvements when
the theatre construction is completed in the fourth quarter of 2002. The Company
expects its overall investment in the theatre will total approximately $11
million.
4. EARNINGS PER SHARE
The following table summarizes the Company's common shares used for computation
of basic and diluted earnings per share:
Three months Nine months
ended September 30, 2002 ended September 30, 2002
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic earnings:
Income available to common shareholders $ 7,047 17,165 $ 0.41 $20,655 16,805 $ 1.23
Effect of dilutive securities:
Stock options -- 161 -- -- 157 --
Contingent shares from conversion of
minority interest 375 857 -- 820 627 (0.01)
------- ------ -------- ------- ------ --------
Diluted earnings $ 7,482 18,183 $ 0.41 $21,475 17,589 $ 1.22
======= ====== ======== ======= ====== ========
Three months Nine months
ended September 30, 2001 ended September 30, 2001
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic earnings:
Income available to common shareholders $ 6,054 14,742 $ 0.41 $17,431 14,715 $ 1.18
Effect of dilutive securities:
Stock options -- 61 -- -- 27 --
------- ------ -------- ------- ------ --------
Diluted earnings $ 6,054 14,803 $ 0.41 $17,431 14,742 $ 1.18
======= ====== ======== ======= ====== ========
5. COMMON SHARE OFFERING
On February 8, 2002, the Company issued 2.3 million common shares in a
registered public offering for net proceeds of $43 million. The proceeds were
used to fund the acquisition of 5 megaplex theatres from Gulf States Theatres,
completed in March 2002.
6. PREFERRED SHARE OFFERING
On May 29, 2002, the Company issued 2.3 million 9.5% Series A cumulative
preferred shares, in a registered public offering, for net proceeds of $55.4
million. The offering includes 300,000 shares from the underwriters'
over-allotment option which was exercised in full. The net proceeds have been
recorded in shareholders equity. The preferred shares have a liquidation
preference of $25 per share. The proceeds were used to fund the $53 million
acquisition of 3 megaplex theatres, purchased on June 28, 2002.
7. SALE OF JOINT VENTURE INTEREST
During the third quarter, the Company sold to Atlantic a total of a 7.1%
interest in Atlantic-EPR in exchange for $1.3 million in cash, bringing the
year-to-date total interest sold to 14.6% or $2.6 million. It is expected that
Atlantic will acquire up to an additional 49.4% interest in Atlantic-EPR by
selling securities to German investors, with the proceeds of those sales to be
contributed to Atlantic-EPR and then paid to the Company to reduce its current
interest of 69.4%. Atlantic EPR is subject to joint control between the Company
and Atlantic and accordingly, the Company has not consolidated the financial
results of Atlantic EPR but rather accounts for its investment in the real
estate joint venture under the equity method of accounting.
8. SALE OF EXCESS REAL ESTATE
On September 3, 2002, the Company sold approximately 7 acres of undeveloped land
adjacent to our Westminster, Colorado entertainment/retail development for net
proceeds of approximately $3.5 million. The land represented excess land not
intended to be developed by the Company. The transaction resulted in a gain of
approximately $202 thousand.
9. SUBSEQUENT EVENTS
On September 16, 2002, the Company's Board of Trustees declared a cash dividend
of $0.475 per common share, which was paid on October 15, 2002 to shareholders
of record as of September 30, 2002.
On September 16, 2002, the Company's Board of Trustees declared a cash dividend
of $0.59375 per share, on the 9.5% series A Preferred Shares, which was paid on
October 15, 2002 to preferred shareholders of record as of September 30, 2002.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 on Form 10-K for the
year ended December 31, 2001 and in "Risk Factors" in the Company's prospectus
filed under Rule 424(b) of the SEC on May 24, 2002, incorporated by reference
herein.
OVERVIEW
Our primary business strategy is to purchase real estate (land, buildings and
other improvements) leased to operators of destination based entertainment and
entertainment related properties under long-term, triple-net leases. As of
September 30, 2002, we had invested approximately $712 million (before
accumulated depreciation) in 37 megaplex theatre properties and 12 restaurant/
retail properties located in 16 states.
Substantially all of our properties are leased pursuant to long-term, triple-net
leases, under which the tenants typically pay all operating expenses of a
property, including, but not limited to, all real estate taxes, assessments and
other government charges, insurance, utilities, repairs and maintenance.
Substantially all of our revenues are derived from rents received or accrued
under long-term, triple-net leases and interest earned from the temporary
investment of funds in short-term investments.
We incur general and administrative expenses including compensation expense for
our executive officers and other employees, professional fees and various
expenses incurred in the process of identifying and acquiring additional
properties. We are self-administered and managed by our trustees, executive
officers and other employees. Our primary non-cash expense is the depreciation
of our properties. We depreciate buildings and improvements on our properties
over a seven-year to 40-year period for tax purposes and primarily a 40-year
period for financial reporting purposes. We do not own or lease any significant
personal property or equipment at any property we currently own.
Third Quarter Acquisitions
During the three months ended September 30, 2002, we completed approximately $26
million of property acquisitions. On August 7, 2002, we acquired the Livonia,
MI, AMC 20 screen megaplex theatre from AMC for a cash purchase price of $22
million. The AMC Livonia 20 lease entered into during the quarter is a 20 year
triple-net lease with three renewal options of five years each exercisable at
the option of the tenant. On July 19, 2002, the Company acquired land in Little
Rock, AR, underlying an 18 screen megaplex theatre being constructed by Rave
Motion Pictures, for a cash purchase price of $3.8 million. Rave Motion Pictures
is obligated to pay rent on the land during construction. We expect to purchase
the building and improvements when the theatre construction is completed in the
fourth quarter of 2002. We expect our overall investment in the Rave Little Rock
theatre will total approximately $11 million once it is completed. We funded the
third quarter acquisitions with cash on hand and funds drawn on our short-term
credit facility.
CRITICAL ACCOUNTING POLICIES
There have been no changes from the policies discussed in our Annual Report on
Form 10-K for the year ended December 31, 2001.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE-MONTH PERIOD
ENDED SEPTEMBER 30, 2001
RENTAL REVENUE -- Revenue from property rentals was $18.8 million for the three
months ended September 30, 2002 compared to $13.7 million for the three months
ended September 30, 2001. The $5.1 million increase resulted from the nine
megaplex theatre property acquisitions completed in 2002 ($3.8 million), the
acquisition and consolidation in December 2001 of the remaining third party
interest in the Westcol joint venture ($1.1 million), and from rent increases on
existing properties ($0.2 million).
PROPERTY OPERATING EXPENSE -- Our property operating expenses totaled $25
thousand for the three months ended September 30, 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 in 2001.
GENERAL AND ADMINISTRATIVE EXPENSE -- Our general and administrative expenses
totaled $0.6 million for the three months ended September 30, 2002 compared to
$0.5 million for the same period in 2001. The increase was due to a general
increase across several categories of expenses including personnel costs,
professional fees and insurance expenses.
NET INTEREST EXPENSE - Our net interest expense increased to $6.3 million for
the three months ended September 30, 2002 from $5.1 million for the three months
ended September 30, 2001. The $1.2 million increase in net interest expense
resulted from an increase in long-term debt related to financings of property
acquisitions made during fiscal 2002 and 2001, and the recognition of interest
expense from the Westcol theatre first mortgage loan, acquired with the
acquisition/consolidation of the remaining third party interest in the Westcol
joint venture in December 2001.
DEPRECIATION AND AMORTIZATION EXPENSE -- Our depreciation and amortization
expenses totaled $3.7 million for the three months ended September 30, 2002
compared to $2.6 million for the same period in 2001. The $1.1 million increase
resulted from the property acquisitions completed in 2001 and 2002.
MINORITY INTEREST IN NET INCOME -- For the three months ended September 30, 2002
minority interest in net income was $375 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.
INCOME FROM JOINT VENTURE -- Income from joint venture totaled $0.3 million for
the three months ended September 30, 2002 compared to $0.6 million for the same
period in 2001. The decrease was primarily attributed to the acquisition of the
remaining third party interest in the Westcol joint venture in December 2001.
During the three-months ended September 30, 2001, the Company accounted for our
interest in the Westcol joint venture using the equity method of accounting, and
for the three-months ended September 30, 2002 the results of Westcol are shown
on a consolidated basis.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS - Net income available to common
shareholders for the three months ended September 30, 2002 totaled $7.0 million
as compared to $6.1 million for the three months ended September 30, 2001. The
$0.9 million increase in net income resulted from the $5.1 million increase in
rental revenue offset by increases in our expenses and distributions to minority
interests in EPT Gulf States and our preferred shareholders.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 2001
RENTAL REVENUE -- Revenue from property rentals was $51.6 million for the nine
months ended September 30, 2002 compared to $40.5 million for the nine months
ended September 30, 2001. The $11.1 million increase resulted primarily from
property acquisitions completed in 2002 and 2001 ($7.2 million), the acquisition
and consolidation in December 2001 of the remaining third party interest in the
Westcol joint venture ($3.3 million), and from rent increases on existing
properties and increases in percentage rents earned ($0.6 million).
PROPERTY OPERATING EXPENSE -- Our property operating expenses totaled $171
thousand for the nine months ended September 30, 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 in 2001.
GENERAL AND ADMINISTRATIVE EXPENSE -- Our general and administrative expenses
totaled $1.7 million for the nine months ended September 30, 2002 compared to
$2.1 million for the same period in 2001. The decrease was attributed to the
proxy related expenses incurred in the prior year.
NET INTEREST EXPENSE - Our net interest expense increased to $17.9 million for
the nine months ended September 30, 2002 from $14.9 million for the nine months
ended September 30, 2001. The $3.0 million increase in net interest expense
resulted from an increase in long-term debt related to financings of property
acquisitions made during fiscal 2002 and 2001, and the recognition of interest
expense from the Westcol theatre first mortgage loan, acquired with the
acquisition/consolidation of the remaining third party interest in the Westcol
joint venture in December 2001.
DEPRECIATION AND AMORTIZATION EXPENSE -- Our depreciation and amortization
expenses totaled $9.8 million for the nine months ended September 30, 2002
compared to $7.7 million for the same period in 2001. The $2.1 million increase
resulted primarily from the property acquisitions completed in 2001 and 2002.
MINORITY INTEREST IN NET INCOME -- For the nine months ended September 30, 2002
minority interest in net income was $820 thousand, arising from the issuance of
$15 million in 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.
INCOME FROM JOINT VENTURE -- Income from joint venture totaled $1.1 million for
the nine months ended September 30, 2002 compared to $1.7 million for the same
period in 2001. The decrease was primarily the result of our acquisition of the
remaining third party interest in the Westcol joint venture in December 2001.
During the nine months ended September 30, 2001, the Company accounted for our
interest in the Westcol joint venture using the equity method of accounting, and
for the nine months ended September 30, 2002 the results of Westcol are shown on
a consolidated basis.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS - Net income for the nine months
ended September 30, 2002 totaled $20.7 million as compared to $17.4 million for
the nine months ended September 30, 2001. The $3.3 million increase in net
income resulted from the $11.1 million increase in rental revenue and the $0.4
million decrease in general and administrative expenses, offset by increases in
net interest expense, depreciation and amortization, property operating
expenses, decreases in income from joint venture, and the impact of
distributions to minority interests in EPT Gulf States and our preferred
shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $19.2 million at September 30, 2002. In addition,
the Company had restricted cash of $6.5 million available for debt service in
connection with the $120.1 million mortgage debt due in February 2006.
Mortgage Debt and Credit Facilities
As of September 30, 2002, we had total debt outstanding of $332.9 million. All
of our debt is mortgage debt secured by substantially all of our rental
properties. Of this debt, $76 million is variable rate debt and $257 million is
fixed rate debt. The $332.9 million aggregate principal amount of indebtedness
had a weighted average interest rate of approximately 7.3% as of September 30,
2002.
During the third quarter, we terminated the remaining $21 million available to
borrow under our iSTAR $75 million credit facility. At September 30, 2002, we
had $54 million outstanding under that credit facility, therefore, we have no
additional amount available to draw under the iSTAR credit facility. The iSTAR
credit facility is a secured facility with approximately one and one-half years
remaining under the original three-year term and carries interest at an average
of LIBOR plus 400 basis points.
At September 30, 2002, we had $22 million of outstanding debt under our $50
million Fleet Bank credit facility. The Fleet Bank credit facility is fully
collateralized and available to draw the $28 million remaining. We expect to use
proceeds from the facility for the acquisition of rental property and general
corporate purposes. The credit facility is a secured facility with a three-year
term and carries interest at LIBOR plus 300 basis points.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring
corporate operating expenses, debt service requirements and distributions to
shareholders, including a 9.5% fixed dividend on our preferred shares. At
September 30, 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 our debt, and allow
distributions to our shareholders and avoidance of corporate level federal
income or excise tax in accordance with Internal Revenue Code requirements for
qualification as a REIT. However, we will continue to require new capital to
acquire additional properties, and continue to evaluate potential sources of
debt and equity capital for this purpose.
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 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 and nine month
periods ended September 30, 2002 and September 30, 2001 (in thousands):
Three months Nine months
ended September 30, ended September 30,
2002 2001 2002 2001
------- ------ ------- -------
Net income available to common shareholders $7,047 $6,054 $20,655 $17,431
Less: Gain on sale of real estate (202) - (202) -
Add: Real estate depreciation 3,365 2,501 9,152 7,499
Add: Allocated share of joint venture depreciation 119 204 387 614
------- ------ ------- -------
Basic Funds From Operations 10,329 8,759 29,992 25,544
Add: minority interest in net income 375 - 820 -
------- ------ ------- -------
Diluted Funds From Operations $10,704 $8,759 $30,812 $25,544
======= ====== ======= =======
Weighted average common shares:
Basic 17,165 14,742 16,805 14,715
Diluted 18,183 14,803 17,589 14,742
NEW ACCOUNTING PRONOUNCEMENTS
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 Company on January 1,
2002. The adoption of SFAS 144 did not have a material impact on the Company's
financial position or results of operations.
In April 2002, the FASB issued FAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FAS Statement No. 13, and Technical Correction." FAS
145 eliminates extraordinary accounting treatment for reporting or loss on debt
extinguishments, and amends other existing authoritative pronouncements to
make various technical corrections, clarifies meanings, or describes their
applicability under changed conditions. The Company does not anticipate a
significant impact on their results of operations from adopting FAS 145.
In July 2002, the FASB issued FAS 146, "Accounting For Costs Associated With
Exit Or Disposal Activities." FAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities. Under FAS 146,
a commitment to an exit or disposal plan no longer will be a sufficient basis
for recording a liability for those activities. The Company does not anticipate
a significant impact on their results of operations from adopting FAS 146.
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 "RISK FACTORS" IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 AND
ITS PROSPECTUS FILED UNDER RULE 424(b) OF THE SEC ON MAY 24, 2002. 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. 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.
ITEM 4. CONTROLS AND PROCEDURES
A review and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of a date within 90 days prior to the
filing of this quarterly report. Based on that review and evaluation, the CEO
and CFO have concluded that the Company's current disclosure controls and
procedures, as designed and implemented, were effective. There have been no
significant changes in the Company's internal controls subsequent to the date of
their evaluation. There were no significant material weaknesses identified in
the course of such review and evaluation and, therefore, no corrective measures
were taken by the Company.
PART II -- OTHER INFORMATION
ITEM 1 . LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in the
ordinary course of business, the Company is not presently involved in any
litigation nor, to its knowledge, is any litigation threatened against the
Company or its properties, which is reasonably likely to have a material adverse
effect on the liquidity or results of operations of the Company.
ITEM 2 . CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 29, 2002, the Company issued 2.3 million 9.5% Series A cumulative
preferred shares, in a registered public offering, for net proceeds of $55.4
million. The net proceeds have been recorded in shareholders equity. The
preferred shares have a liquidation preference of $25 per share.
ITEM 3 . DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 . OTHER INFORMATION
None.
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 5, 2002 By /s/ David M. Brain
-----------------------------------
David M. Brain, President -
Chief Executive Officer and Trustee
Dated: November 5, 2002 By /s/ Fred L. Kennon
-----------------------------------
Fred L. Kennon, Vice President -
Chief Financial Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT AND SEC RULE 13A-14
I, David M. Brain, President and Chief Executive Officer of Entertainment
Properties Trust, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Entertainment Properties Trust for the quarter ended September 30,
2002;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 5, 2002 /s/ David M. Brain
-------------------------------------
David M. Brain
President and Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT AND SEC RULE 13A-14
I, Fred L. Kennon, Vice President and Chief Financial Officer of Entertainment
Properties Trust, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Entertainment Properties Trust for the quarter ended September 30,
2002;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
d) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
f) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 5, 2002 /s/ Fred L Kennon
------------------------------------------------
Fred L. Kennon
Vice President and Chief Financial Officer,
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the accompanying quarterly report on Form 10-Q of
Entertainment Properties Trust (the "Issuer") for the quarter ended September
30, 2002, I, David M. Brain, President and Chief Executive Officer of the
Issuer, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that:
(1) such quarterly report on Form 10-Q of the Issuer for the
quarter ended September 30, 2002, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) the information contained in such quarterly report on Form
10-Q of the Issuer for the quarter ended September 30, 2002,
fairly presents, in all material respects, the financial
condition and results of operations of the Issuer for and as
of the end of such quarter.
/s/ David M. Brain
-------------------------------------
David M. Brain
President and Chief Executive Officer
Date: November 5, 2002
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the accompanying quarterly report on Form 10-Q of
Entertainment Properties Trust (the "Issuer") for the quarter ended September
30, 2002, I, Fred L. Kennon, Vice President and Chief Financial Officer of the
Issuer, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge
and belief, that:
(1) such quarterly report on Form 10-Q of the Issuer for the
quarter ended September 30, 2002, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) the information contained in such quarterly report on Form
10-Q of the Issuer for the quarter ended September 30, 2002,
fairly presents, in all material respects, the financial
condition and results of operations of the Issuer for and as
of the end of such quarter.
/s/ Fred L. Kennon
-------------------------------------------
Fred L. Kennon
Vice President and Chief Financial Officer,
Date: November 5, 2002