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, 2003
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 May 1, 2003, there were 17,246,956 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, 2003 DECEMBER 31, 2002
-------------- -----------------
ASSETS (UNAUDITED)
Rental properties, net $ 688,477 $ 679,937
Land held for development 12,395 12,985
Investment in joint venture 1,085 1,109
Cash and cash equivalents 82,767 10,091
Restricted cash 6,495 6,495
Receivable from joint venture -- 8,438
Other assets 17,367 11,332
--------- ---------
Total assets $ 808,586 $ 730,387
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,782 $ 1,653
Common dividend payable 8,622 8,162
Preferred dividend payable 1,366 1,366
Unearned rents 226 4,036
Long-term debt 429,380 346,617
--------- ---------
Total liabilities 441,376 361,834
Commitments and contingencies -- --
Minority interest in consolidated subsidiary 15,000 15,375
Shareholders' equity:
Common Shares, $.01 par value; 50,000,000 shares
authorized;
17,715,476 and 17,655,822 shares issued at March 31, 2003 177 177
and December 31, 2002, respectively
Preferred Shares, $.01 par value; 5,000,000 shares
authorized;
2,300,000 shares issued at March 31, 2003
and December 31, 2002 23 23
Additional paid-in-capital 380,880 379,447
Treasury shares at cost: 472,200 common shares
at March 31, 2003 and December 31, 2002 (6,533) (6,533)
Loans to shareholders (3,525) (3,525)
Non-vested shares (2,319) (1,276)
Distributions in excess of net income (16,493) (15,135)
--------- ---------
Shareholders' equity 352,210 353,178
--------- ---------
Total liabilities and shareholders' equity $ 808,586 $ 730,387
========= =========
2
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)
Three Months Ended March 31,
2003 2002
-------- --------
Rental revenue $ 20,458 $ 15,796
Other Income 587 --
-------- --------
Total Revenue 21,045 15,796
Property operating expense 95 71
General and administrative expense, excluding amortization
of non-vested shares below 856 522
Interest expense 7,234 5,733
Depreciation and amortization 3,687 2,748
Amortization of non-vested shares 231 150
-------- --------
Income before minority interest and income from joint 8,942 6,572
venture Equity in income from joint venture 91 375
Minority interest (375) (70)
-------- --------
Net income $ 8,658 $ 6,877
Preferred dividend requirements (1,366) --
-------- --------
Net income available to common shareholders $ 7,292 $ 6,877
======== ========
Net income per common share
Basic $ 0.43 $ 0.43
Diluted $ 0.42 $ 0.42
Shares used for computation (in thousands):
Basic 17,074 16,050
Diluted 18,274 16,396
Dividends per common share $ 0.50 $ 0.475
======== ========
3
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
Three Months Ended March 31,
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net income $ 8,658 $ 6,877
Adjustments to reconcile net income to net cash provided by
operating activities
Minority interest in net income 375 70
Equity in income from joint venture (91) (375)
Depreciation and amortization 3,687 2,748
Non-cash compensation expense 237 150
(Increase) decrease in other assets 9,263 (1,102)
Increase in accounts payable and accrued liabilities 130 395
Decrease in unearned rents (3,810) (1,934)
--------- ---------
Net cash provided by operating activities 18,449 6,829
--------- ---------
INVESTING ACTIVITIES
Acquisition of rental properties (10,447) (52,483)
Acquisition of development properties (915) --
Distributions from joint venture 116 456
Development and capitalized costs (229) (369)
--------- ---------
Net cash used in investing activities (11,475) (52,396)
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt facilities 175,500 --
Principal payments on long-term debt (92,737) (1,299)
Deferred financing fees paid (6,906) --
Proceeds from issuance of common shares 123 42,812
Distribution to minority interest (750) --
Distribution to preferred shareholders (1,366) --
Distribution to common shareholders (8,162) (6,659)
--------- ---------
Net cash provided by (used in) by financing activities 65,702 34,854
--------- ---------
Net increase (decrease) in cash and cash equivalents 72,676 (10,713)
Cash and cash equivalents at beginning of period 10,091 24,590
--------- ---------
Cash and cash equivalents at end of period $ 82,767 $ 13,877
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Declaration of dividend to common shareholders $ 8,622 $ 8,125
Declaration of dividend to preferred shareholders $ 1,366 $ --
Transfer of land held for development to rental property $ 1,734 $ --
Minority interest issued in exchange for rental property $ -- $ 15,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during three-month period for interest $ 6,678 $ 5,668
Issuance of non-vested stock grants to management $ 1,304 $ --
4
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, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003.
The consolidated balance sheet as of December 31, 2002 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, 2002.
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, 2003
as a result of a series of sale leaseback transactions pertaining to a number of
AMC megaplex theatres. A substantial portion of the Company's revenues
(approximately 74%) result from 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.
SHARE BASED COMPENSATION
During 2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
accounting for stock-based compensation and amends SFAS No. 123 "Accounting for
Stock-Based Compensation." The Company adopted SFAS 148 as of January 1, 2003.
5
Share Options
The Company has historically measured share-based compensation expense using the
intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations. Under APB 25, because the exercise price of the Company's
employee share options equals the market price of the underlying shares at the
date of grant, no compensation expense is recognized for stock options. As
allowed by SFAS No. 148, we have elected to apply the recognition provisions of
SFAS No. 123 to all employee awards granted, modified, or settled after January
1, 2003. If the Company had measured compensation cost for the stock awards
granted prior to January 1, 2003 to our employees under the fair value based
method prescribed by SFAS No. 123, net income would have been changed to the pro
forma amounts set forth below. For the purposes of pro forma disclosures, the
estimated fair value of the option is amortized to expense over the options'
vesting periods.
Three Months Ended March 31,
2003 2002
--------- ---------
Net income:
As reported $ 7,292 $ 6,877
Pro forma $ 7,260 $ 6,834
Basic earnings per share:
As reported $ .43 $ .43
Pro forma $ .43 $ .43
Diluted earnings per
share:
As reported $ .42 $ .42
Pro forma $ .42 $ .42
Restricted Shares
During the first quarter of 2003, the Company issued 29,579 restricted common
shares for bonus compensation to executives and other employees of the Company.
During the first quarter of 2003, the Company issued 24,027 restricted common
shares to executives under a long-term compensation plan. Based upon the market
price of the Company's common shares on the grant dates, approximately $1.3
million was recognized as non-vested shares issued in the first quarter of 2003.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior quarter amounts to conform
to the current quarter presentation.
3. PROPERTY ACQUISITIONS
During the three month period ended March 31, 2003, we completed approximately
$10.5 million of property acquisitions. On March 31, 2003, we acquired the
AmStar Cinema 16 megaplex theatre in Macon, Georgia from TPX Macon, LLC for a
cash purchase price of $7 million. The property is leased to AmStar
Entertainment, LLC under a 20 year triple net lease. On February 5, 2003, we
acquired tenant improvements of $3.4 million from AMC related to the Forum 30
megaplex theatre in Sterling Heights, Michigan, which was purchased in 2002.
During the three month period, we also completed construction of a casual dining
restaurant property on a site adjacent to our AMC megaplex theatre in Mesquite,
Texas.
4. EARNINGS PER SHARE
6
The following table summarizes the Company's common shares used for computation
of basic and diluted earnings per share:
Three months
ended March 31, 2003
Income Shares Per Share
(numerator) (denominator) Amount
----------- ----------- -----------
Basic earnings:
Income available to common shareholders $ 7,292 17,074 $ 0.43
Effect of dilutive securities:
Stock options -- 219 --
Contingent shares from conversion of minority interest 375 857 (.01)
Non-vested common share grants -- 124 --
----------- ----------- -----------
Diluted earnings $ 7,667 18,274 $ 0.42
=========== =========== ===========
Three months
ended March 31, 2002
Income Shares Per Share
(numerator) (denominator) Amount
----------- ----------- -----------
Basic earnings:
Income available to common shareholders $ 6,877 16,050 $ 0.43
Effect of dilutive securities:
Stock options -- 127 --
Contingent shares from conversion of
minority interest 70 150 (.01)
Non-vested common share grants -- 69 --
----------- ----------- -----------
Diluted earnings $ 6,947 16,396 $ 0.42
=========== =========== ===========
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, 2002 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 March
31, 2003, we had invested approximately $726 million (before accumulated
depreciation) in 38 megaplex theatre properties and 26 restaurant /retail
properties located in 17 states.
7
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.
The Company incurs 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.
First Quarter Acquisitions
During the three month period ended March 31, 2003, the Company completed
approximately $10.5 million of property acquisitions. On March 31, 2003, the
Company acquired the AmStar Cinema 16 megaplex theatre in Macon, Georgia from
TPX Macon, LLC for a cash purchase price of $7 million. The property is leased
to AmStar Entertainment, LLC under a 20 year triple net lease. On February 5,
2003, the Company acquired tenant improvements of $3.4 million from AMC related
to Forum 30 in Sterling Heights, Michigan. During the three month period, the
Company also completed construction of a Johnny Carino's Italian restaurant in
Mesquite, Texas.
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, 2002.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 2003 COMPARED TO THE THREE-MONTH PERIOD ENDED
MARCH 31, 2002
RENTAL REVENUE - Revenue from property rentals was $20.5 million for the three
months ended March 31, 2003 compared to $15.8 million for the three months ended
March 31, 2002. The $4.7 million increase resulted primarily from the eleven
megaplex theatre property acquisitions completed in 2002 ($4.6 million) and from
base rent increases on existing properties ($0.1 million).
OTHER INCOME - Other income was $0.6 million for the three months ended March
31, 2003 which resulted from payments received related to settlement of claims
we filed in the Loews Cineplex bankruptcy proceedings. For the three months
ended March 31, 2002, the Company had no other income reported.
PROPERTY OPERATING EXPENSE - Our property operating expenses totaled $95
thousand for the three months ended March 31, 2003 compared to $71 thousand for
the three months ended March 31, 2002. These expenses arise from the operations
of retail space in Greenville, South Carolina and Westcol Center, an
entertainment and retail center in Westminster Colorado.
GENERAL AND ADMINISTRATIVE EXPENSE - Our general and administrative expenses
totaled $0.9 million for the three months ended March 31, 2003 compared to $0.5
million for the same period in 2002. The increase was due to a general increase
across most categories of expenses including insurance expenses, professional
fees and personnel costs. Insurance premiums
8
increased for both Director and Officer insurance and property and casualty
insurance for the first quarter 2003 compared to the same quarter in 2002 due to
an overall increase in premiums in the insurance market. The Company expects
insurance premiums to remain stable in the future. Professional fees increased
for the first quarter 2003 compared to the same quarter in 2002 due to legal
fees related to compliance with the Sarbanes Oxley Act. Personnel costs
increased for the first quarter 2003 compared to the same quarter in 2002 due to
the exercise of stock options, payroll taxes related to the vesting of stock
grants and stock bonuses, and the addition of one employee.
INTEREST EXPENSE - Our net interest expense increased to $7.2 million for the
three months ended March 31, 2003 from $5.7 million for the three months ended
March 31, 2002. The $1.5 million increase in net interest expense resulted from
increases in long-term debt ($1.1 million) and fees related to the paydown of
our short term credit facilities in the current quarter ($0.5 million).
DEPRECIATION AND AMORTIZATION EXPENSE - Our depreciation and amortization
expenses, including amortization of non-vested shares, totaled $3.9 million for
the three months ended March 31, 2003 compared to $2.9 million for the same
period in 2002. The $1.0 million increase resulted from the property
acquisitions completed in 2002 and 2003.
MINORITY INTEREST IN NET INCOME - For the three months ended March 31, 2003
minority interest in net income was $375 thousand as compared to $70 thousand in
the prior year period. The increase is due to the impact of ownership of the
related properties for a full three months in the current quarter compared to a
partial period in the first quarter of 2002.
INCOME FROM JOINT VENTURE - Income from joint venture totaled $91 thousand for
the three months ended March 31, 2003 compared to $375 thousand for the same
period in 2002. The decrease was due to the Company's lower ownership interest
in the Atlantic-EPR I joint venture (20% ownership in the current quarter)
compared to 84% interest in the prior year.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS - Net income available to common
shareholders for the three months ended March 31, 2003 totaled $7.3 million as
compared to $6.9 million for the three months ended March 31, 2002. The $0.4
million increase in net income resulted from the $4.7 million increase in total
revenues offset by increases in our expenses and distributions to minority
interests in EPT Gulf States and our preferred shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $82.8 million at March 31, 2003. 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. We expect
to use the available cash to fund the acquisition of additional rental
properties during the second quarter.
Mortgage Debt and Credit Facilities
As of March 31, 2003, we had total debt outstanding of $429.4 million. All of
our debt is mortgage debt secured by substantially all of our rental properties.
Of this debt, $20 million was variable rate debt and $409.4 million was fixed
rate debt. The $429.4 million aggregate principal amount of indebtedness had a
weighted average interest rate of approximately 6.6% as of March 31, 2003.
On February 27, 2003, the Company completed the issuance of $155.5 million in
10-year mortgage certificates secured by 15 of our megaplex properties. The
certificates have a 20-year amortization, with the principal balance due at
maturity in 2013. The certificates were issued with a weighted average interest
rate of approximately 5.7%. The proceeds from the debt were used to pay down
approximately $91 million in existing indebtedness secured by the properties,
with the remaining proceeds to be used to acquire additional properties and for
other general corporate purposes.
9
At March 31, 2003, we had no debt outstanding under our $50 million Fleet Bank
credit facility. The Fleet Bank credit facility is a secured facility and at
March 31, 2003, there were no real estate properties pledged to that facility
and therefore, none of the $50 million was available to draw. As we acquire
additional properties that qualify as collateral under that credit facility, we
expect to use proceeds from the facility for additional acquisitions of rental
property and general corporate purposes. The credit facility has two years
remaining and carries interest at LIBOR plus 300 basis points.
As of March 31, 2003, we amended our iSTAR credit facility to increase the size
to $75 million and extend the term of the facility to February 28, 2006. At
March 31, 2003, we had $20 million of debt outstanding under our iSTAR credit
facility. As we acquire additional properties that qualify as collateral, we
expect to use proceeds from the facility for additional acquisitions of rental
property and general corporate purposes. The credit facility has three years
remaining and carries interest at LIBOR plus 400 basis points.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring
corporate operating expenses, debt service requirements and distributions to
shareholders. At March 31, 2003, we 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 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
Funds from operations (FFO) is a widely used measure of the operating
performance of real estate companies and is provided here as a supplemental
measure to Generally Accepted Accounting Principles (GAAP) net income available
to common shareholders and earnings per share. 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 is a
non-GAAP financial measure. 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, 2003 and March 31, 2002 (in thousands):
Three months ended March 31,
2003 2002
------- -------
Net income available to common shareholders $ 7,292 $ 6,877
Add: Real estate depreciation 3,641 2,732
Add: Allocated share of joint venture depreciation 32 139
------- -------
Basic Funds From Operations 10,965 9,748
Add: minority interest in net income 375 70
------- -------
Diluted Funds From Operations $11,340 $ 9,818
======= =======
10
NEW ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company adopted SFAS No. 148 effective January 1, 2003, as required,
without material effect on the Company's financial condition or results of
operations.
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, 2002 AND
ITS PROSPECTUS FILED UNDER RULE 424(B) OF THE SEC ON MAY24, 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
11
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
None
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.
99 Certification pursuant to Section 906 of the Sarbanes-Oxley Act.
B. Reports on Form 8-K.
Form 8-K filed March 4, 2003 announcing the issuance by the Company of
$155.5 million in commercial mortgage pass-through certificates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTERTAINMENT PROPERTIES TRUST
Dated: May 8, 2003 By /s/ David M. Brain
--------------------------
David M. Brain, President - Chief
Executive Officer and
Trustee
Dated: May 8, 2003 By /s/ Fred L. Kennon
--------------------------
Fred L. Kennon, Vice President -
Chief Financial Officer
12
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;
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: May 8, 2003 /s/ David M. Brain
-----------------------------
David M. Brain
President and Chief
Executive Officer
13
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
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: May 8, 2003 /s/ Fred L. Kennon
-------------------------------------
Fred L. Kennon
Vice President and Chief Financial Officer
14