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, 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 W. 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 October 24, 2003, there were 20,124,833 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, 2003 DECEMBER 31, 2002
------------------ -----------------
ASSETS (UNAUDITED)
Rental properties, net $ 742,658 $ 679,937
Land held for development 17,035 12,985
Investment in joint venture 1,046 1,109
Cash and cash equivalents 107,314 10,091
Restricted cash 6,495 6,495
Receivable from joint venture - 8,438
Other assets 15,899 11,332
--------- ---------
Total assets $ 890,447 $ 730,387
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,211 $ 1,653
Common dividend payable 9,827 8,162
Preferred dividend payable 1,366 1,366
Unearned rents 377 4,036
Long-term debt 439,152 346,617
--------- ---------
Total liabilities 451,933 361,834
Commitments and contingencies - -
Minority interest in consolidated subsidiary 15,375 15,375
Shareholders' equity:
Common Shares, $.01 par value; 50,000,000 shares authorized;
20,124,833 and 17,655,822 shares issued at September 30, 2003
and December 31, 2002, respectively 201 177
Preferred Shares, $.01 par value; 5,000,000 shares authorized;
2,300,000 shares issued at September 30, 2003
and December 31, 2002 23 23
Additional paid-in-capital 454,030 379,447
Treasury shares at cost: 472,200 common shares at September 30,
2003 and December 31, 2002 (6,533) (6,533)
Loans to shareholders (3,525) (3,525)
Non-vested shares (1,856) (1,276)
Distributions in excess of net income (19,201) (15,135)
--------- ---------
Shareholders' equity 423,139 353,178
--------- ---------
Total liabilities and shareholders' equity $ 890,447 $ 730,387
========= =========
2
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,
2003 2002 2003 2002
-------- -------- -------- --------
Rental revenue $ 22,406 $ 18,797 $ 64,808 $ 51,582
Other income 608 - 1,195 -
-------- -------- -------- --------
Total revenue 23,014 18,797 66,003 51,582
Property operating expense 220 25 398 171
General and administrative expense, excluding
amortization of non-vested shares below 929 589 2,935 1,679
Interest expense, net 7,653 6,278 22,363 17,895
Depreciation and amortization 4,085 3,410 11,631 9,256
Amortization of non-vested shares 232 248 694 548
-------- -------- -------- --------
Income before minority interest, gain on sale of
real estate and income from joint venture 9,895 8,247 27,982 22,033
Gain on sale of real estate - 202 - 202
Equity in income from joint venture 111 339 299 1,100
Minority interest (375) (375) (1,125) (820)
-------- -------- -------- --------
Net income $ 9,631 $ 8,413 $ 27,156 $ 22,515
Preferred dividend requirements (1,366) (1,366) (4,097) (1,860)
-------- -------- -------- --------
Net income available to common shareholders $ 8,265 $ 7,047 $ 23,059 $ 20,655
======== ======== ======== ========
Net income per common share
Basic $ 0.48 $ 0.41 $ 1.34 $ 1.24
Diluted $ 0.46 $ 0.41 $ 1.31 $ 1.22
Shares used for computation (in thousands):
Basic 17,353 17,035 17,189 16,675
Diluted 18,641 18,183 18,456 17,589
Dividends per common share $ 0.50 $ 0.475 $ 1.50 $ 1.425
======== ======== ======== ========
3
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited - in thousands)
Nine Months Ended September 30,
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net income $ 27,156 $ 22,515
Adjustments to reconcile net income to net cash provided by operating activities
Minority interest in net income 1,125 820
Gain on sale of land held for development - (202)
Equity in income from joint venture (299) (1,100)
Depreciation and amortization 11,631 9,256
Non-cash compensation expense 713 548
Common shares issued to management and trustees 63 54
(Increase) decrease in other assets 2,714 (647)
Decrease in receivable from joint venture 8,438 -
Decrease in accounts payable and accrued liabilities (441) (279)
Decrease in unearned rents (3,659) (1,819)
--------- ---------
Net cash provided by operating activities 47,441 29,146
--------- ---------
INVESTING ACTIVITIES
Acquisition of rental properties (68,709) (131,489)
Acquisition of development properties (8,589) -
Proceeds from sale of land - 3,533
Distributions from joint venture 362 1,347
Proceeds from sale of equity interest in joint venture - 2,186
Development and capitalized costs (970) (1,270)
--------- ---------
Net cash used in investing activities (77,906) (125,693)
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt facilities 190,200 22,000
Principal payments on long-term debt (97,665) (3,819)
Deferred financing fees paid (7,414) (1,629)
Proceeds from issuance of common shares, net of costs 73,220 43,069
Proceeds from issuance of preferred shares, net of costs - 55,435
Distribution to minority interest (1,125) (445)
Distribution to shareholders (29,528) (23,434)
--------- ---------
Net cash provided by financing activities 127,688 91,177
--------- ---------
Net increase (decrease) in cash and cash equivalents 97,223 (5,370)
Cash and cash equivalents at beginning of period 10,091 24,590
--------- ---------
Cash and cash equivalents at end of period $ 107,314 $ 19,220
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
Declaration of dividend to common shareholders $ 9,827 $ 8,160
Declaration of dividend to preferred shareholders $ 1,366 $ 1,366
Transfer of land held for development to rental property $ 5,509 $ -
Minority interest issued in exchange for rental property $ - $ 15,000
Sale of equity interest in joint venture $ - $ 411
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during nine-month period for interest $ 21,178 $ 17,383
Issuance of non-vested stock grants to management $ 1,304 $ 1,219
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 nine-month period ended September 30,
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 (68%)
of the megaplex theatre rental properties held by the Company at September 30,
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 72%) 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.
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
5
the underlying shares at the date of grant, no compensation expense is
recognized for stock options. As allowed by SFAS No. 148, we 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
trustees and 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 options are amortized to expense over the options' vesting periods.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------ ------ ------- -------
Net income available to common shareholders:
As reported $8,265 $7,047 $23,059 $20,655
Pro forma $8,233 $7,004 $22,963 $20,525
Basic earnings per share:
As reported $ 0.48 $ 0.41 $ 1.34 $ 1.24
Pro forma $ 0.47 $ 0.41 $ 1.34 $ 1.23
Diluted earnings per share:
As reported $ 0.46 $ 0.41 $ 1.31 $ 1.22
Pro forma $ 0.46 $ 0.41 $ 1.31 $ 1.21
Restricted Shares
During the first quarter of 2003, the Company issued 29,579 restricted common
shares as bonus compensation to executives and other employees of the Company.
During the first quarter of 2003, the Company also 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. COMMON SHARE OFFERING
On September 23, 2003, the Company completed the sale of 2,352,000 common shares
to RBC Capital Markets at a net price after underwriting discount of $30.70 per
share, for total net proceeds, after offering expenses, of $72.2 million. The
Company expects to use the proceeds from the offering for general corporate
purposes, including the acquisition of properties.
6
4. EARNINGS PER SHARE
The following table summarizes the Company's common shares used for computation
of basic and diluted earnings per share (in thousands):
Three months Nine months
ended September 30, 2003 ended September 30, 2003
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic earnings:
Income available to common shareholders $ 8,265 17,353 $ 0.48 $ 23,059 17,189 $ 1.34
Effect of dilutive securities:
Stock options - 307 (0.01) - 286 (0.02)
Contingent shares from conversion of
minority interest 375 857 - 1,125 857 -
Non-vested common share grants - 124 (0.01) - 124 (0.01)
----------- ------------- -------- --------- ------------- --------
Diluted earnings $ 8,640 18,641 $ 0.46 $ 24,184 18,456 $ 1.31
=========== ============= ======== ========= ============ ========
<Caption>
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 17,035 $ 0.41 $ 20,655 16,675 $ 1.24
Effect of dilutive securities:
Stock options - 161 - - 157 (0.01)
Contingent shares from conversion of
minority interest 375 857 - 820 627 -
Non-vested common share grants - 130 - - 130 (0.01)
----------- ------------- -------- --------- ------------- --------
Diluted earnings $ 7,422 18,183 $ 0.41 $ 21,475 17,589 $ 1.22
=========== ============= ======== ========= ============ ========
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 September 19, 2003, incorporated by
reference herein.
7
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, 2003, we had invested approximately $818 million (before
accumulated depreciation) in 41 megaplex theatre properties, 31 restaurant
/retail properties and one recreational waterpark located in 17 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.
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.
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 MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2002
Total revenue was $23.0 million for the three months ended September 30, 2003
compared to $18.8 million for the three months ended September 30, 2002. The
$4.2 million increase resulted primarily from rental income associated with the
property acquisitions completed in 2002 and 2003 ($3.2 million), base rent
increases and percentage rents on existing properties ($0.4 million). In
addition, other income increased $608 thousand due to a payment related to our
Van's Skate Park lease at the retail property in Westminster, Colorado which was
closed and vacated during the third quarter ($439 thousand), and income received
from claims we filed in the Loews Cineplex bankruptcy proceedings ($169
thousand).
Our property operating expenses totaled $220 thousand for the three months ended
September 30, 2003 compared to $25 thousand for the three months ended September
30, 2002. These expenses arise from our non-triple net retail property
operations in Detroit, Michigan; Greenville, South Carolina; and Westminster,
Colorado.
Our general and administrative expenses totaled $0.9 million for the three
months ended September 30, 2003 compared to $0.6 million for the same period in
2002. The increase in operating expenses is due primarily to:
o Increases in insurance expense, including premiums for both Director and
Officer insurance and property and casualty insurance compared to the
same quarter in 2002 due to an overall increase in premiums in the
insurance market.
o An increase in fees paid for professional services, primarily for legal
fees related to compliance with the Sarbanes
8
Oxley Act.
o An increase in payroll and related expenses attributable to increases in
base compensation, bonus awards, payroll taxes related to the vesting of
stock grants and stock bonuses, and the addition of two employees.
o Increased costs associated with our Board of Trustees meetings.
o Increases in franchise and other miscellaneous taxes paid.
Our net interest expense increased by $1.4 million to $7.7 million for the three
months ended September 30, 2003 from $6.3 million for the three months ended
September 30, 2002. The increase in net interest expense primarily resulted from
increases in long-term debt used to finance real estate acquisitions.
Depreciation and amortization expenses, including amortization of non-vested
shares, totaled $4.3 million for the three months ended September 30, 2003
compared to $3.7 million for the same period in 2002. The $0.6 million increase
resulted from the property acquisitions completed in 2002 and 2003 and the 2003
grants of restricted shares.
Income from joint venture totaled $111 thousand for the three months ended
September 30, 2003 compared to $339 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 74.3% interest
in the prior year).
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
Total revenue was $66.0 million for the nine months ended September 30, 2003
compared to $51.6 million for the nine months ended September 30, 2002. The
$14.4 million increase resulted primarily from the property acquisitions
completed in 2002 and 2003 and from base rent increases and percentage rents on
existing properties ($13.6 million) and from increases in other income ($1.2
million) including payments received from claims filed in the Loews Cineplex
bankruptcy proceedings and from a payment related to Van's skate park lease
which was closed and vacated during the third quarter at our Westminster,
Colorado retail and entertainment center.
Our property operating expenses totaled $398 thousand for the nine months ended
September 30, 2003 compared to $171 thousand for the nine months ended September
30, 2002. These expenses arise from our non-triple net retail property
operations in Detroit, Michigan; Greenville, South Carolina; and Westminster,
Colorado.
General and administrative expenses totaled $2.9 million for the nine months
ended September 30, 2003 compared to $1.7 million for the same period in 2002.
The increase in operating expenses is due primarily to:
o Increases in insurance expense, including premiums for both Director and
Officer insurance and property and casualty insurance due to an overall
increase in premiums in the insurance market.
o An increase in payroll and related expenses attributable to increases in
base compensation, bonus awards, payroll taxes related to the vesting of
stock grants and stock bonuses, and the addition of two employees.
o An increase in fees paid for professional services, primarily for legal
fees related to compliance with the Sarbanes Oxley Act.
o Increased costs associated with our Board of Trustees meetings.
9
o Increases in franchise and other miscellaneous taxes paid.
Net interest expense increased to $22.4 million for the nine months ended
September 30, 2003 from $17.9 million for the nine months ended September 30,
2002. The $4.5 million increase in net interest expense resulted primarily from
increases in long-term debt used to finance real estate acquisitions.
Our depreciation and amortization expenses, including amortization of non-vested
shares, totaled $12.3 million for the nine months ended September 30, 2003
compared to $9.8 million for the same period in 2002. The $2.5 million increase
resulted primarily from the property acquisitions completed in 2002 and 2003 and
2003 grants of restricted shares.
Income from joint venture totaled $299 thousand for the nine months ended
September 30, 2003 compared to $1.1 million 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 period compared to 80.4% interest in
the prior year).
For the nine months ended September 30, 2003 minority interest in net income was
$1.1 million as compared to $820 thousand in the prior year period. The increase
is due to the impact of ownership of the related properties for a full nine
months in the current period compared to a partial period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $107.3 million at September 30, 2003. In
addition, the Company had restricted cash of $6.5 million available for debt
service in connection with the $120.5 million mortgage debt due in February
2006.
We received approximately $72 million in proceeds from a common share offering
in September 2003. Also during the quarter, we received approximately $15
million from a mortgage loan on one of our properties. We expect to use
substantially all of those proceeds to fund planned acquisitions and for general
corporate purposes.
Mortgage Debt and Credit Facilities
As of September 30, 2003, we had total debt outstanding of $439.2 million. All
of our debt is mortgage debt secured by a substantial portion of our rental
properties. Of this debt, $20 million was variable rate debt and $419.2 million
was fixed rate debt. The $439.2 million aggregate principal amount of
indebtedness had a weighted average interest rate of approximately 6.6% as of
September 30, 2003.
At September 30, 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 September 30, 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 September 30, 2003, we had $20 million of debt outstanding under our iSTAR
$75 million 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
10
Short-term liquidity requirements consist primarily of normal recurring
corporate operating expenses, debt service requirements and distributions to
shareholders. At September 30, 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 fund the operations of the
Company, make 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 (FFO)
The National Association of Real Estate Investment Trusts (NAREIT) developed FFO
as a relative non-GAAP financial measure of performance and liquidity of an
equity REIT in order to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. 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,
as defined under the revised NAREIT definition and presented by us, is net
income, computed in accordance with GAAP, excluding gains and losses from sales
of depreciable operating properties, plus real estate related 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 and nine month
periods ended September 30, 2003 and September 30, 2002 (in thousands):
Three months Nine months
ended September 30, ended September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net income available to common shareholders $ 8,265 $ 7,047 $ 23,059 $ 20,655
Less: Gain on sale of real estate - (202) - (202)
Add: Real estate depreciation 4,042 3,365 11,496 9,152
Add: Allocated share of joint venture depreciation 34 119 101 387
-------- -------- -------- --------
Basic Funds From Operations 12,341 10,329 34,656 29,992
-------- -------- -------- --------
Add: minority interest in net income 375 375 1,125 820
-------- -------- -------- --------
Diluted Funds From Operations $ 12,716 $ 10,704 $ 35,781 $ 30,812
======== ======== ======== ========
FFO per common share:
Basic $ 0.71 $ 0.61 $ 2.02 $ 1.80
Diluted $ 0.68 $ 0.59 $ 1.94 $ 1.75
Shares used for computation (in thousands):
Basic 17,353 17,035 17,189 16,675
Diluted 18,641 18,183 18,456 17,589
11
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. As allowed by SFAS No. 148, we elected to
apply the recognition provisions of SFAS No. 123 to all employee awards granted,
modified, or settled after January 1, 2003. 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.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" (SFAS No. 150).
SFAS 150 establishes standards for how an issuer classifies and measures three
classes of freestanding financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 was effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted SFAS No.
150 effective July 1, 2003, without a material impact on its financial position
and results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" (FIN 46). FIN 46
addresses the consolidation of entities whose equity holders have either (a) not
provided sufficient equity at risk to allow the entity to finance its own
activities or (b) do not possess certain characteristics of a controlling
financial interest. FIN 46 requires the consolidation of these entities, known
as variable interest entities ("VIEs"), by the primary beneficiary of the
entity. The primary beneficiary is the entity, if any, that is subject to a
majority of the risk of loss from the VIE's activities, entitled to receive a
majority of the VIE's residual returns, or both. For variable interests in a VIE
created before February 1, 2003, the FASB has recently delayed the
implementation date to the first interim date or annual period ending after
December 15, 2003. The Company is currently evaluating the impact of FIN 46 on
its financial condition and 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 SEPTEMBER 19, 2003.
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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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 September 30, 2003, the end of the
period covered by this 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 in the Company's internal control over financial
reporting.
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
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.
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31 Certifications pursuant to Section 302 of the Sarbanes-
Oxley Act
32 Certifications furnished pursuant to Section 906 of the
Sarbanes-Oxley Act.
B. Reports on Form 8-K.
Form 8-K filed July 24, 2003 in connection with the release of the
Company's earnings for the quarter ended June 30, 2003.
Form 8-K filed September 19, 2003 in order to file as an exhibit the
Underwriting Agreement with RBC Dain Rauscher, Inc. entered into by the
Company in connection with the public offering of the Company's common
shares which closed on September 23, 2003.
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: October 24, 2003 By /s/ David M. Brain
------------------------
David M. Brain, President -
Chief Executive Officer and Trustee
Dated: October 24, 2003 By /s/ Fred L. Kennon
------------------------
Fred L. Kennon, Vice President -
Chief Financial Officer
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