UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2004
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, UNION STATION SUITE 201
KANSAS CITY, MISSOURI 64108
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (816) 472-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of each exchange on which registered
- ---------------------------------------------- -----------------------------------------
Common Shares of Beneficial Interest, New York Stock Exchange
par value $.01 per share
9.50% Series A Cumulative Redeemable Preferred New York Stock Exchange
Shares, par value $.01 per share
7.75% Series B Cumulative Redeemable Preferred New York Stock Exchange
Shares, par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
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, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. YES [X] NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12b-2). YES [X] NO [ ]
THE AGGREGATE MARKET VALUE OF THE COMMON SHARES OF BENEFICIAL INTEREST ("COMMON
SHARES") OF THE REGISTRANT HELD BY NON-AFFILIATES, BASED ON THE CLOSING PRICE ON
THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLY COMPLETED SECOND FISCAL
QUARTER, AS REPORTED ON THE NEW YORK STOCK EXCHANGE, WAS $895,216,950. AT
FEBRUARY 28, 2005, THERE WERE 25,048,040 COMMON SHARES OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2005 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A are incorporated by reference in Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Investors should review the Risk Factors commencing on page 4 of this report for
a discussion of risks that may impact our financial condition, business or share
price.
GENERAL
Entertainment Properties Trust ("we," "us," "EPR" or the "Company") was formed
on August 22, 1997 as a Maryland real estate investment trust ("REIT") to
capitalize on the opportunities created by the development of destination
entertainment and entertainment-related properties, including megaplex movie
theatre complexes. We completed an initial public offering of our common shares
of beneficial interest ("common shares") on November 18, 1997.
We are a self-administered REIT. As of December 31, 2004, our real estate
portfolio was comprised of over $1.2 billion in assets and consisted of 57
megaplex theatre properties (including three joint venture properties) located
in 22 states and Ontario, Canada, four additional theatre properties under
development, six entertainment retail centers (including one joint venture
property) located in Westminster, Colorado, New Rochelle, New York and Ontario,
Canada, other specialty properties, and land parcels leased to restaurant and
retail operators adjacent to several of our theatre properties. Our theatre
properties are leased to leading theatre operators, including American
Multi-Cinema, Inc. ("AMC"), a subsidiary of AMC Entertainment, Inc. ("AMCE"),
Muvico Entertainment, LLC ("Muvico"), Regal Cinemas, Inc. ("Regal"),
Consolidated Theatres ("Consolidated"), Loews Cineplex Entertainment ("Loews"),
Rave Motion Pictures ("Rave"), AmStar Cinemas, LLC ("AmStar") , Wallace Theatres
("Wallace"), Crown Theatres ("Crown"), and Southern Theatres ("Southern").
Approximately 61% of our megaplex theatre properties are leased to AMC.
During the year ended December 31, 2004, approximately $15 million, or 12% of
our total revenue was derived from our four entertainment retail centers in
Ontario, Canada which we acquired on March 1, 2004. The Canadian entertainment
retail centers represent approximately $156 million, or 14% of our total rental
properties at December 31, 2004. (See "Risk Factors - There are risks in owning
real estate outside the U.S." and "Changes in foreign currency exchange rates
may have an impact on the value of our shares.")
For a discussion of material property acquisitions during the three months ended
December 31, 2004, see Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments."
We aggregate the financial information of all our properties into one reportable
segment because the properties all have similar economic characteristics and
provide similar services to similar types and classes of customers.
We believe entertainment is an important sector of the retail real estate
industry and that, as a result of our focus on properties in this sector and the
industry relationships of our management, we have a competitive advantage in
providing capital to operators of these types of properties. Our principal
business strategy is to be the nation's leading entertainment real estate
company by continuing to acquire high-quality properties leased to entertainment
and entertainment-related business operators, generally under long-term
triple-net leases that require the tenant to pay substantially all expenses
associated with the operation and maintenance of the property.
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Megaplex theatres typically have at least 14 screens with stadium-style seating
(seating with elevation between rows to provide unobstructed viewing) and are
equipped with amenities that significantly enhance the audio and visual
experience of the patron. We believe the development of megaplex theatres has
accelerated the obsolescence of many of the previous generation of multiplex
movie theatres by setting new standards for moviegoers, who, in our experience,
have demonstrated their preference for the more attractive surroundings, wider
variety of films and superior customer service typical of megaplex theatres (see
"Risk Factors - Operating risks in the entertainment industry may affect the
ability of our tenants to perform under their leases" and "Market prices for our
shares may be affected by perceptions about the financial health or share value
of our tenants or the performance of REIT stocks generally.")
We expect the development of megaplex theatres to continue in the United States
and abroad for the foreseeable future. With the development of the stadium style
megaplex theatre as the preeminent store format for cinema exhibition, the older
generation of smaller flat-floor theatres has generally experienced a
significant downturn in attendance and performance. As a result of the
significant capital commitment involved in building these new properties and the
experience and industry relationships of our management, we believe we will
continue to have opportunities to provide capital to businesses that seek to
develop and operate these properties but would prefer to lease rather than own
the properties. We believe our ability to finance these properties will enable
us to continue to grow and diversify our asset base (See Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of capital requirements necessary for the Company's continued
growth).
BUSINESS OBJECTIVES AND STRATEGIES
Our primary business objective is to continue to enhance shareholder value by
achieving predictable and increasing Funds From Operations ("FFO") per Share
(See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Funds From Operations" for a discussion of FFO), through
the acquisition of high-quality properties leased to entertainment and
entertainment-related business operators. We intend to achieve this objective by
continuing to execute the Growth Strategies, Operating Strategies and
Capitalization Strategies described below:
GROWTH STRATEGIES
FUTURE PROPERTIES
We intend to pursue acquisitions of high-quality entertainment related
properties from operators with a strong market presence. As a part of our growth
strategy, we will consider entering into additional joint ventures with other
developers or investors in real estate, developing additional megaplex theatre
properties and developing or acquiring entertainment retail centers ("ERCs") and
single-tenant, out-of-home, location-based entertainment and
entertainment-related properties.
OPERATING STRATEGIES
LEASE RISK MINIMIZATION
To avoid initial lease-up risks and produce a predictable income stream, we
typically acquire single-tenant properties that are leased under long-term
leases. We believe our willingness to make long-term investments in properties
offers our tenants financial flexibility and allows tenants to allocate capital
to their core businesses. Although we will continue to emphasize single-tenant
properties, we have acquired and may continue to acquire multi-tenant properties
we believe add value to our shareholders.
LEASE STRUCTURE
We have structured our property acquisitions and leasing arrangements to achieve
a positive spread between our cost of capital and the rentals paid by our
tenants. We typically structure leases on a triple-net basis under which the
tenants bear the principal portion of the financial and operational
responsibility for
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the properties. During each lease term and any renewal periods, the leases
typically provide for periodic increases in rent and/or percentage rent based
upon a percentage of the tenant's gross sales over a pre-determined level. In
our multi-tenant property leases and some of our theatre leases, we require the
tenant to pay a common area maintenance (CAM) charge to defray its pro rata
share of insurance, taxes and maintenance costs.
TENANT RELATIONSHIPS
We intend to continue developing and maintaining long-term working relationships
with theatre, restaurant, retail and other entertainment-related business
operators and developers by providing capital for multiple properties on a
national or regional basis, thereby enhancing efficiency and value to those
operators and to the Company.
PORTFOLIO DIVERSIFICATION
We will endeavor to further diversify our asset base by property type,
geographic location and tenant. In pursuing this diversification strategy, we
will target theatre, restaurant, retail and other entertainment-related business
operators which management views as leaders in their market segments and which
have the financial strength to compete effectively and perform under their
leases with the Company. We may also consider the acquisition of other types of
properties if they are complimentary to our portfolio and add value to our
shareholders.
CAPITALIZATION STRATEGIES
DEBT AND EQUITY FINANCING
We finance the acquisition of properties with a combination of debt and
preferred and common equity financing (See "Risk Factors - There is risk in
using debt to fund property acquisitions" and "We must obtain new financing in
order to grow"). We expect to maintain a debt to total capitalization ratio
(i.e., total debt of the Company as a percentage of shareholders' equity plus
total debt) of approximately 50% to 55%.
JOINT VENTURES
We will examine and pursue potential additional joint venture opportunities with
institutional investors or developers if they are considered to add value to our
shareholders. We may employ higher leverage in joint ventures (See "Risk Factors
- - Joint ventures may limit flexibility with jointly owned investments").
PAYMENT OF REGULAR DISTRIBUTIONS
We have paid and expect to continue paying quarterly dividend distributions to
our common and preferred shareholders. Our Series A preferred shares have a
dividend rate of 9.50% and our Series B preferred shares, issued subsequent to
December 31, 2004, have a dividend rate of 7.75%. Among the factors the Board of
Trustees considers in setting the common share distribution rate are the
applicable REIT tax rules and regulations that apply to distributions, the
Company's results of operations, including FFO per share, and the Company's Cash
Available for Distribution (defined as net cash flow available for distribution
after payment of operating expenses, debt service, and other obligations). We
expect to periodically increase distributions on our common shares as FFO and
Cash Available for Distribution increase and as other considerations and factors
warrant (See "Risk Factors - We cannot assure you we will continue paying
dividends at historical rates").
COMPETITION
We compete for real estate financing opportunities with other companies that
invest in real estate, as well as traditional financial sources such as banks
and insurance companies. While we were the first publicly
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traded REIT formed to specialize in entertainment-themed properties, other REITs
have sought and may continue to seek to finance entertainment properties as new
properties are developed or become available for acquisition.
EMPLOYEES
As of December 31, 2004, we had eleven full time employees.
WEBSITE ACCESS TO EXCHANGE ACT REPORTS AND OTHER DOCUMENTS
Our internet website address is www.eprkc.com. We make available through our
website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it to the SEC. You
may also view our Code of Business Conduct and Ethics, Company Governance
Guidelines, Independence Standards for Trustees and the charters of our audit,
nominating/company governance and compensation committees on our website. Copies
of these documents are also available in print to any shareholder who requests
them.
RISK FACTORS
There are many risks and uncertainties that can affect our future business,
financial performance or share price. Some of these are beyond our control. Here
is a brief description of some of the important factors which could cause our
future business, operating results, financial condition or share price to be
materially different than our expectations. This discussion includes a number of
forward-looking statements. You should refer to the description of the
qualifications and limitations on forward-looking statements on page 25 of this
report.
RISKS THAT MAY IMPACT OUR FINANCIAL CONDITION OR PERFORMANCE
WE COULD BE ADVERSELY AFFECTED BY A TENANT'S BANKRUPTCY
If a tenant becomes bankrupt or insolvent, that could diminish the income we
expect from that tenant's leases. We may not be able to evict a tenant solely
because of its bankruptcy. On the other hand, a bankruptcy court might authorize
the tenant to terminate its leases with us. If that happens, our claim against
the bankrupt tenant for unpaid future rent would be subject to statutory
limitations that might be substantially less than the remaining rent owed under
the leases. In addition, any claim we have for unpaid past rent would likely not
be paid in full and we would also have to take a charge against earnings for any
accrued straight-line rent receivable related to the leases.
The development of megaplex movie theatres has rendered many older multiplex
theatres obsolete. To the extent our tenants own a substantial number of
multiplexes, they have been, or may in the future be, required to take
significant charges against their earnings resulting from the impairment of
these assets. Megaplex theatre operators have also been and could in the future
be adversely affected by any overbuilding of megaplex theatres in their markets
and the cost of financing, building and leasing megaplex theatres. Two of our
tenants, Edwards Theatre Circuit, Inc. (now part of the Regal Entertainment
Group), which operates two of our theatre properties, and Loews Cineplex
Entertainment, which operates two of our theatres, filed for, and emerged from,
bankruptcy reorganization in recent years. We did not incur any significant
expenses or loss of revenue as a result of those bankruptcy reorganizations.
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OPERATING RISKS IN THE ENTERTAINMENT INDUSTRY MAY AFFECT THE ABILITY OF OUR
TENANTS TO PERFORM UNDER THEIR LEASES
The ability of our tenants to operate successfully in the entertainment industry
and remain current on their lease obligations depends on a number of factors,
including the availability and popularity of motion pictures, the performance of
those pictures in tenants' markets, the allocation of popular pictures to
tenants and the terms on which the pictures are licensed. Neither we nor our
tenants control the operations of motion picture distributors. Megaplex theatres
represent a greater capital investment, and generate higher rents, than the
previous generation of multiplex theatres. For this reason, the ability of our
tenants to operate profitably and perform under their leases could be dependent
on their ability to generate higher revenues per screen than multiplex theatres
typically produce.
The success of "out-of-home" entertainment venues such as megaplex theatres and
entertainment retail centers also depends on general economic conditions and the
willingness of consumers to spend time and money on out-of-home entertainment.
A SINGLE TENANT REPRESENTS A SUBSTANTIAL PORTION OF OUR LEASE REVENUES
Approximately 61% of our megaplex theatre properties are leased to AMC, one of
the nation's largest movie exhibition companies. AMCE has guaranteed AMC's
performance under substantially all of their leases. We have diversified and
expect to continue to diversify our real estate portfolio by entering into lease
transactions with a number of other leading theatre operators. Nevertheless, our
revenues and our continuing ability to pay shareholder dividends are currently
substantially dependent on AMC's performance under its leases and AMCE's
performance under its guaranty.
We believe AMC occupies a strong position in the industry and we intend to
continue acquiring and leasing back AMC theatres. However, if for any reason AMC
failed to perform under its lease obligations and AMCE did not perform under its
guaranty, we could be required to reduce or suspend our shareholder dividends
and may not have sufficient funds to support operations until substitute tenants
are obtained. If that happened, we cannot predict when or whether we could
obtain substitute quality tenants on acceptable terms.
THERE IS RISK IN USING DEBT TO FUND PROPERTY ACQUISITIONS
We have used leverage to acquire properties and expect to continue to do so in
the future. Although the use of leverage is common in the real estate industry,
our use of debt to acquire properties does expose us to some risks. If a
significant number of our tenants fail to make their lease payments and we don't
have sufficient cash to pay principal and interest on the debt, we could default
on our debt obligations. Our debt financing is secured by mortgages on our
properties. If we fail to meet our mortgage payments, the lenders could declare
a default and foreclose on those properties. Our secured revolving variable rate
credit facility also exposes us to the risk of higher interest rates on amounts
borrowed under that facility.
A PORTION OF OUR SECURED DEBT HAS A "HYPER-AMORTIZATION" PROVISION WHICH MAY
REQUIRE US TO REFINANCE THE DEBT OR SELL THE PROPERTIES SECURING THE DEBT PRIOR
TO MATURITY
As of December 31, 2004, we had approximately $96.6 million outstanding under a
single secured mortgage loan agreement that contains a "hyper-amortization"
feature, in which the principal payment schedule is rapidly accelerated, and our
principal payments are substantially increased, if we fail to pay the balance on
the anticipated prepayment date of July 11, 2008. We undertook this debt on the
assumption that we can refinance the debt prior to these hyper-amortization
payments becoming due. If we cannot obtain acceptable refinancing at the
appropriate time, the hyper-amortization payments will require substantially all
of the revenues from those properties securing the debt to be applied to the
debt repayment, which could substantially reduce our common share dividend rate
and could adversely affect our financial condition and liquidity.
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WE MUST OBTAIN NEW FINANCING IN ORDER TO GROW
As a REIT, we are required to distribute at least 90% of our taxable net income
to shareholders in the form of dividends. This means we are limited in our
ability to use internal capital to acquire properties and must continually raise
new capital in order to continue to grow and diversify our real estate
portfolio. Our ability to raise new capital depends in part on factors beyond
our control, including conditions in equity and credit markets, conditions in
the industries in which our tenants are engaged and the performance of real
estate investment trusts generally. We continually consider and evaluate a
variety of potential transactions to raise additional capital, but we cannot
assure that attractive alternatives will always be available to us, nor that our
share price will increase or remain at a level that will permit us to continue
to raise equity capital publicly or privately.
IF WE FAIL TO QUALIFY AS A REIT, WE WOULD BE TAXED AS A CORPORATION, WHICH WOULD
SUBSTANTIALLY REDUCE FUNDS AVAILABLE FOR PAYMENT OF DIVIDENDS TO OUR
SHAREHOLDERS
If we fail to qualify as a REIT for federal income tax purposes, we will be
taxed as a corporation. We are organized and believe we qualify as a REIT, and
intend to operate in a manner that will allow us to continue to qualify as a
REIT. However, we cannot assure you that we will remain qualified in the future.
This is because qualification as a REIT involves the application of highly
technical and complex provisions of the Internal Revenue Code on which there are
only limited judicial and administrative interpretations, and depends on facts
and circumstances not entirely within our control. In addition, future
legislation, new regulations, administrative interpretations or court decisions
may significantly change the tax laws, the application of the tax laws to our
qualification as a REIT or the federal income tax consequences of that
qualification.
If we fail to qualify as a REIT we will face tax consequences that will
substantially reduce the funds available for payment of dividends:
- We would not be allowed a deduction for dividends paid to
shareholders in computing our taxable income and would be subject to
federal income tax at regular corporate rates
- We could be subject to the federal alternative minimum tax and
possibly increased state and local taxes
- Unless we are entitled to relief under statutory provisions, we
could not elect to be treated as a REIT for four taxable years
following the year in which we were disqualified
- We could be subject to tax penalties and interest
In addition, if we fail to qualify as a REIT, we will no longer be required to
pay dividends. As a result of these factors, our failure to qualify as a REIT
could adversely affect the market price for our shares.
OUR DEVELOPMENT FINANCING ARRANGEMENTS EXPOSE US TO FUNDING AND PURCHASE RISKS
Our ability to meet our construction financing obligations which we have
undertaken or may enter into in the future depends on our ability to obtain
equity or debt financing in the required amounts. There is no assurance we can
obtain this financing at rates which will ensure a spread between our cost of
capital and the rent payable to us under the leases to be entered into upon
completion of construction. We will be obligated to purchase and lease-back the
theatres that are subject to our development financing at predetermined rates
(See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Liquidity
Requirements").
RISKS THAT APPLY TO OUR REAL ESTATE BUSINESS
THERE ARE RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE
Although our lease terms obligate the tenants to bear substantially all of the
costs of operating the properties, investing in real estate involves a number of
risks, including:
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- The risk that tenants will not perform under their leases, reducing
our income from the leases or requiring us to assume the cost of
performing obligations (such as taxes, insurance and maintenance)
that are the tenant's responsibility under the lease
- The risk that changes in economic conditions or real estate markets
may adversely affect the value of our properties
- The risk that local conditions (such as oversupply of megaplex
theatres or other entertainment-related properties) could adversely
affect the value of our properties
- We may not always be able to lease properties at favorable rates
- We may not always be able to sell a property when we desire to do so
at a favorable price
- Changes in tax, zoning or other laws could make properties less
attractive or less profitable
If a tenant fails to perform on its lease covenants, that would not excuse us
from meeting any debt obligation secured by the property and could require us to
fund reserves in favor of our lenders, thereby reducing funds available for
payment of dividends. We cannot be assured that tenants will elect to renew
their leases when the terms expire. If a tenant does not renew its lease or if a
tenant defaults on its lease obligations, there is no assurance we could obtain
a substitute tenant on acceptable terms. If we cannot obtain another quality
movie exhibitor to lease a megaplex theatre property, we may be required to
modify the property for a different use, which may involve a significant capital
expenditure and a delay in re-leasing the property.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE
Our leases require the tenants to carry comprehensive liability, casualty,
workers' compensation, extended coverage and rental loss insurance on our
properties. We believe the required coverage is of the type, and amount,
customarily obtained by an owner of similar properties. We believe all of our
properties are adequately insured. However, there are some types of losses, such
as catastrophic acts of nature, for which we or our tenants cannot obtain
insurance at an acceptable cost. If there is an uninsured loss or a loss in
excess of insurance limits, we could lose both the revenues generated by the
affected property and the capital we have invested in the property. We would,
however, remain obligated to repay any mortgage indebtedness or other
obligations related to the property. Since September 11, 2001, the cost of
insurance protection against terrorist acts has risen dramatically. There can be
no assurance our tenants will be able to obtain terrorism insurance coverage, or
that any coverage they do obtain will adequately protect our properties against
loss from terrorist attack.
JOINT VENTURES MAY LIMIT FLEXIBILITY WITH JOINTLY OWNED INVESTMENTS
We may continue to acquire or develop properties in joint ventures with third
parties when those transactions appear desirable. We would not own the entire
interest in any property acquired by a joint venture. Major decisions regarding
a joint venture property may require the consent of our partner. If we have a
dispute with a joint venture partner, we may feel it necessary or become
obligated to acquire the partner's interest in the venture. However, we cannot
ensure that the price we would have to pay or the timing of the acquisition
would be favorable to us. If we own less than a 50% interest in any joint
venture, or if the venture is jointly controlled, the assets and financial
results of the joint venture may not be reportable by us on a consolidated
basis. To the extent we have commitments to, or on behalf of, or are dependent
on, any such "off-balance sheet" arrangements, or if those arrangements or their
properties or leases are subject to material contingencies, our liquidity,
financial condition and operating results could be adversely affected by those
commitments or off-balance sheet arrangements.
OUR MULTI-TENANT PROPERTIES EXPOSE US TO ADDITIONAL RISKS
Our entertainment retail centers in Westminster, Colorado, New Rochelle, New
York, and Ontario, Canada, and similar properties we may seek to acquire or
develop in the future, involve risks not typically encountered in the purchase
and lease-back of megaplex theatres which are operated by a single tenant.
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The ownership or development of multi-tenant retail centers could expose us to
the risk that a sufficient number of suitable tenants may not be found to enable
the center to operate profitably and provide a return to us. Retail centers are
also subject to tenant turnover and fluctuations in occupancy rates, which could
affect our operating results. Multi-tenant retail centers also expose us to the
risk of potential "CAM slippage," which may occur when CAM fees paid by tenants
are exceeded by the actual cost of taxes, insurance and maintenance at the
property.
FAILURE TO COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND OTHER LAWS COULD
RESULT IN SUBSTANTIAL COSTS
Our theatres must comply with the Americans with Disabilities Act (ADA). The ADA
requires that public accommodations reasonably accommodate individuals with
disabilities and that new construction or alterations be made to commercial
facilities to conform to accessibility guidelines. Failure to comply with the
ADA can result in injunctions, fines, damage awards to private parties and
additional capital expenditures to remedy noncompliance. Our leases require the
tenants to comply with the ADA.
Our properties are also subject to various other federal, state and local
regulatory requirements. We believe our properties are in material compliance
with all applicable regulatory requirements. However, we do not know whether
existing requirements will change or whether compliance with future requirements
will involve significant unanticipated expenditures. Although these expenditures
would be the responsibility of our tenants, if tenants fail to perform these
obligations, we may be required to do so.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS
Under federal, state and local environmental laws, we may be required to
investigate and clean up any release of hazardous or toxic substances or
petroleum products at our properties, regardless of our knowledge or actual
responsibility, simply because of our current or past ownership of the real
estate. If unidentified environmental problems arise, we may have to make
substantial payments, which could adversely affect our cash flow and our ability
to make distributions to our shareholders. This is so because:
- As owner we may have to pay for property damage and for
investigation and clean-up costs incurred in connection with the
contamination
- The law may impose clean-up responsibility and liability regardless
of whether the owner or operator knew of or caused the contamination
- Even if more than one person is responsible for the contamination,
each person who shares legal liability under environmental laws may
be held responsible for all of the clean-up costs
- Governmental entities and third parties may sue the owner or
operator of a contaminated site for damages and costs
These costs could be substantial and in extreme cases could exceed the value of
the contaminated property. The presence of hazardous substances or petroleum
products or the failure to properly remediate contamination may adversely affect
our ability to borrow against, sell or lease an affected property. In addition,
some environmental laws create liens on contaminated sites in favor of the
government for damages and costs it incurs in connection with a contamination.
Most of our loan agreements require the Company or a subsidiary to indemnify the
lender against environmental liabilities. Our leases require the tenants to
operate the properties in compliance with environmental laws and to indemnify us
against environmental liability arising from the operation of the properties. We
believe all of our properties are in material compliance with environmental
laws. However, we could be subject to strict liability under environmental laws
because we own the properties. There is also a risk that tenants may not satisfy
their environmental compliance and indemnification obligations under the leases.
Any of these events could substantially increase our cost of operations, require
us to fund environmental indemnities in favor of our lenders and reduce our
ability to service our debt and pay dividends to shareholders.
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REAL ESTATE INVESTMENTS ARE RELATIVELY NON-LIQUID
We may desire to sell a property in the future because of changes in market
conditions or poor tenant performance or to avail ourselves of other
opportunities. We may also be required to sell a property in the future to meet
debt obligations or avoid a default. Specialty real estate projects such as
megaplex theatres cannot always be sold quickly, and we cannot assure you that
we could always obtain a favorable price. We may be required to invest in the
restoration or modification of a property before we can sell it.
THERE ARE RISKS IN OWNING REAL ESTATE OUTSIDE THE UNITED STATES
Our properties in Canada are subject to the risks normally associated with
international operations. The rentals under our Canadian leases and the debt
service on our Canadian mortgage financing are payable in Canadian dollars,
which could expose us to losses resulting from fluctuations in exchange rates.
Canadian real estate and tax laws are complex and subject to change, and we
cannot assure you we will always be in compliance with those laws or that
compliance will not expose us to additional expense. We may also be subject to
fluctuations in Canadian real estate values or markets or the Canadian economy
as a whole, which may adversely affect our investment in those properties.
RISKS THAT MAY AFFECT THE MARKET PRICE OF OUR SHARES
WE CANNOT ASSURE YOU WE WILL CONTINUE PAYING DIVIDENDS AT HISTORICAL RATES
Our ability to continue paying dividends on our common shares at historical
rates, to pay dividends on our preferred shares at their stated rates or to
increase our common share dividend rate will depend on a number of factors,
including our financial condition and results of future operations, the
performance of lease terms by tenants, our ability to acquire, finance and lease
additional properties at attractive rates, and provisions in our loan covenants.
If we do not maintain or increase our common share dividend rate, that could
have an adverse effect on the market price of our common shares and possibly our
preferred shares.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR SHARES
One of the factors that investors may consider in deciding whether to buy or
sell our common shares or preferred shares is our dividend rate as a percentage
of our share price, relative to market interest rates. If market interest rates
increase, prospective investors may desire a higher dividend on our common
shares or seek securities paying higher dividends or interest.
MARKET PRICES FOR OUR SHARES MAY BE AFFECTED BY PERCEPTIONS ABOUT THE FINANCIAL
HEALTH OR SHARE VALUE OF OUR TENANTS OR THE PERFORMANCE OF REIT STOCKS GENERALLY
To the extent any of our tenants or other movie exhibitors report losses or
slower earnings growth, take charges against earnings resulting from the
obsolescence of multiplex theatres or enter bankruptcy proceedings, the market
price for our shares could be adversely affected. The market price for our
shares could also be affected by any weakness in movie exhibitor stocks
generally. We believe these trends had an adverse impact on our common share
price during 2001 and 2000.
LIMITS ON CHANGES IN CONTROL MAY DISCOURAGE TAKEOVER ATTEMPTS WHICH MAY BE
BENEFICIAL TO OUR SHAREHOLDERS
There are a number of provisions in our Declaration of Trust, Maryland law and
agreements we have with others which could make it more difficult for a party to
make a tender offer for our shares or complete a takeover of the Company which
is not approved by our Board of Trustees. These include:
- A staggered Board of Trustees that can be increased in number
without shareholder approval
- A limit on beneficial ownership of our shares, which acts as a
defense against a hostile takeover or acquisition of a significant
or controlling interest, in addition to preserving our REIT status
9
- The ability of the Board of Trustees to issue preferred or common
shares, to reclassify preferred or common shares, and to increase
the amount of our authorized preferred or common shares, without
shareholder approval
- Limits on the ability of shareholders to remove trustees without
cause
- Requirements for advance notice of shareholder proposals at annual
shareholder meetings
- Provisions of Maryland law restricting business combinations and
control share acquisitions not approved by the Board of Trustees
- Provisions of Maryland law protecting corporations (and by extension
REITs) against unsolicited takeovers by limiting the duties of the
trustees in unsolicited takeover situations
- Provisions in Maryland law providing that the trustees are not
subject to any higher duty or greater scrutiny than that applied to
any other director under Maryland law in transactions relating to
the acquisition or potential acquisition of control
- Provisions of Maryland law creating a statutory presumption that an
act of the trustees satisfies the applicable standards of conduct
for trustees under Maryland law
- Provisions in loan or joint venture agreements putting the Company
in default upon a change in control
- Provisions of employment agreements with our officers calling for
share purchase loan forgiveness, severance compensation and vesting
of equity compensation upon a change in control
Any or all of these provisions could delay or prevent a change in control of the
Company, even if the change was in our shareholders' interest or offered a
greater return to our shareholders.
CHANGES IN FOREIGN CURRENCY EXCHANGE RATES MAY HAVE AN IMPACT ON THE VALUE OF
OUR SHARES
The functional currency for our Canadian operations is the Canadian dollar. As a
result, our future earnings could be affected by fluctuations in the exchange
rate between U.S. and Canadian dollars, which in turn could affect our share
price. We have attempted to mitigate our exposure to Canadian currency exchange
risk by having both our Canadian lease rentals and the debt service on our
Canadian mortgage financing payable in the same currency. We may also from time
to time enter into foreign exchange contracts to hedge our transaction
exposures. We had no outstanding foreign exchange contracts as of December 31,
2004 and 2003. If we enter into any such contracts in the future, we could be
subject to the risk of loss on those contracts. We do not engage in purchasing
forward exchange contracts for speculative purposes.
THE JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 MAY ADVERSELY AFFECT
THE VALUE OF OUR SHARES.
On May 28, 2003, the President signed the Jobs and Growth Tax Relief and
Reconciliation Act of 2003 into law, which provides favorable income tax rates
for certain corporate dividends received by individuals through December 31,
2008. Under this law, REIT dividends are generally not eligible for the
preferential rates applicable to dividends unless the dividends are attributable
to income that has been subject to corporate-level tax or are attributable to
certain other dividends received by us. As a result, substantially all of the
dividends paid on our shares are not expected to qualify for such lower rates.
This law could cause stock in non-REIT corporations to be more attractive to
investors than stock in REITs, which may negatively affect the value of, and the
market for, our shares.
TAX REFORM COULD ADVERSELY AFFECT THE VALUE OF OUR SHARES
There have been a number of proposals in Congress for major revision of the
federal income tax laws, including proposals to adopt a flat tax or replace the
income tax system with a national sales tax or value-added tax. Any of these
proposals, if enacted, could change the federal income tax laws applicable to
REITS, subject us to federal tax or reduce or eliminate the current deduction
for dividends paid to our shareholders, any of which could negatively affect the
market for our shares.
10
ITEM 2. PROPERTIES
As of December 31, 2004, our real estate portfolio consisted of 57 megaplex
theatre properties and various restaurant, retail and other properties located
in 22 states and Ontario, Canada. Except as otherwise noted, all of the real
estate investments listed below are owned or ground leased directly by us. The
following table lists our properties, their locations, acquisition dates, number
of theatre screens, number of seats, gross square footage, and the tenant.
11
ACQUISITION BUILDING
PROPERTY LOCATION DATE SCREENS SEATS (GROSS SQ.FT) TENANT
- ----------------------------- ---------------- ----------- ------- -------- ------------- ------------
Megaplex Theatre Properties:
Grand 24(3) Dallas, TX 11/97 24 5,067 98,175 AMC
Mission Valley 20(1)(3) San Diego, CA 11/97 20 4,361 84,352 AMC
Promenade 16(3) Los Angeles, CA 11/97 16 2,860 129,822 AMC
Ontario Mills 30(3) Los Angeles, CA 11/97 30 5,469 131,534 AMC
Lennox 24(1)(3) Columbus, OH 11/97 24 4,412 98,261 AMC
West Olive 16(3) St. Louis, MO 11/97 16 2,817 60,418 AMC
Studio 30(3) Houston, TX 11/97 30 6,032 136,154 AMC
Huebner Oaks 24(3) San Antonio, TX 11/97 24 4,400 96,004 AMC
First Colony 24(1)(6) Houston, TX 11/97 24 5,098 107,690 AMC
Oakview 24(1)(6)(10) Omaha, NE 11/97 24 5,098 107,402 AMC
Leawood Town Center 20(6) Leawood, KS 2/98 20 2,995 75,224 AMC
Gulf Pointe 30(2)(6) Houston, TX 3/98 30 6,008 130,891 AMC
South Barrington 30(6) Chicago, IL 3/98 30 6,210 130,891 AMC
Cantera 30(2)(5) Chicago, IL 4/98 30 6,210 130,757 AMC
Mesquite 30(2)(6) Dallas, TX 6/98 30 6,008 130,891 AMC
Hampton Town Center 24(6) Norfolk, VA 8/98 24 5,098 107,396 AMC
Raleigh Grand 16(4) Raleigh, NC 8/98 16 2,596 51,450 Consolidated
Pompano 18(4) Pompano Beach,FL 11/98 18 3,424 73,637 Muvico
Paradise 24(6) Davie, FL 12/98 24 4,180 96,497 Muvico
Boise Stadium(1)(4) Boise, ID 12/98 21 4,734 140,300 Regal
Aliso Veijo Stadium 20(6) Los Angeles, CA 12/98 20 4,352 98,557 Regal
Westminster 24(7) Westminster, CO 6/99 24 4,812 107,000 AMC
Woodridge 18(2)(10) Woodridge, IL 6/99 18 4,384 84,206 Loews
Tampa Starlight 20(10) Tampa, FL 1/00 20 3,928 84,000 Muvico
Palm Promenade 24(10) San Diego, CA 1/00 24 4,586 88,610 AMC
Cary Crossroads 20(10) Cary, NC 3/02 20 3,936 77,475 Consolidated
Elmwood Palace 20(10) New Orleans, LA 3/02 20 4,357 90,391 AMC
Hammond Palace 10(10) New Orleans, LA 3/02 10 1,531 39,850 AMC
Houma Palace 10(10) New Orleans, LA 3/02 10 1,871 44,450 AMC
Westbank Palace 16(10) New Orleans, LA 3/02 16 3,176 71,607 AMC
Clearview Palace 12(10) New Orleans, LA 3/02 12 2,495 70,000 AMC
Olathe Studio 30(10) Olathe, KS 6/02 30 5,731 113,108 AMC
Forum 30(10) Sterling 6/02 30 5,041 107,712 AMC
Heights, MI
Cherrydale 16(10) Greenville, SC 6/02 16 2,744 51,450 Consolidated
Livonia 20(10) Detroit, MI 8/02 20 3,808 75,106 AMC
Hoffman Town Centre 22(10) Alexandria, VA 10/02 22 4,150 132,903 AMC
Colonel Glenn 18(9) Little Rock, AR 12/02 18 4,122 79,330 Rave
AmStar Cinema 16(9) Macon, GA 3/03 16 2,950 55,000 AmStar
Star Southfield 20(9) Southfield, MI 5/03 20 7,000 110,000 Loews
Southwind 12(9) Lawrence, KS 6/03 12 2,481 42,497 Wallace
Veterans 24(11) Tampa, FL 6/03 24 4,580 94,774 AMC
New Roc City 18 and IMAX(12) New Rochelle, NY 10/03 18 3,400 103,000 Regal
Harbour View Grande 16(9) Suffolk, VA 11/03 16 3,036 61,500 Consolidated
Columbiana Grande 14(9) Columbiana, SC 11/03 14 3,000 55,400 Consolidated
The Grande 18 Hialeah, FL 12/03 18 4,900 77,400 Crown
Mississauga 16(8) Toronto, ON 3/04 16 3,856 95,000 AMC
Oakville 24(8) Toronto, ON 3/04 24 4,772 89,290 AMC
Whitby 24(8) Toronto, ON 3/04 24 4,688 89,290 AMC
Kanata 24(8) Ottawa, ON 3/04 24 4,764 89,290 AMC
Mesa Grand 24(9) Phoenix, AZ 3/04 24 4,530 94,774 AMC
Deer Valley 30(9) Phoenix, AZ 3/04 30 5,877 113,768 AMC
Hamilton 24(9) Hamilton, NJ 3/04 24 4,268 95,466 AMC
Grand Prairie 18(9) Peoria, IL 7/04 18 4,063 82,330 Rave
Lafayette Grand 16(9) Lafayette, LA 7/04 16 2,744 61,579 Southern
Northeast Mall 18 Hurst, TX 11/04 18 3,886 98,250 Rave
The Grand D'Iberville 14 Biloxi, MS 12/04 14 2,400 48,000 Southern
Melbourne 16 Melbourne, FL 12/04 16 3,600 75,850 Rave
----- ------- -----------
Subtotal Megaplex
Theatres 1,191 238,896 5,165,959
----- ------- -----------
12
ACQUISITION BUILDING
PROPERTY LOCATION DATE SCREENS SEATS (GROSS SQ.FT) TENANT
- ---------------------------------------- ----------------- ----------- ------- ------- ------------- ----------------------
Retail, Restaurant and Other Properties:
Pompano Kmart Pompano Beach, FL 11/98 -- -- 80,540 Kmart
Hooters Restaurant Pompano Beach, FL 11/98 -- -- 5,600 Hooters Restaurant
Westminster Promenade(9) Westminster, CO 6/99 -- -- 140,000 Multi-Tenant
On-The-Border Dallas, TX 1/99 -- -- 6,580 Brinkers
Bennigan's Houston, TX 5/00 -- -- 6,575 S & A
Bennigan's Dallas, TX 5/00 -- -- 6,575 S & A
Texas Land & Cattle Houston, TX 5/00 -- -- 6,600 Tx.C.C., Inc.
Texas Roadhouse Dallas, TX 1/99 -- -- 6,000 TX Roadhouse
Roadhouse Grill Atlanta, GA 8/00 -- -- 6,850 Roadhouse Grill
Cherrydale Shops Greenville, SC 6/02 -- -- 10,000 Multi-Tenant
Johnny Carino's Dallas, TX 3/03 -- -- 6,200 Kona Rest. Group, Inc.
Star Southfield, Center(9) Southfield, MI 5/03 -- -- 45,200 Multi-Tenant
New Roc City(12) New Rochelle, NY 10/03 -- -- 344,000 Multi-Tenant
Harbour View Station(9) Suffolk, SC 11/03 -- -- 21,855 Multi-Tenant
Whitby Entertainment Centrum(8) Toronto, ON 3/04 -- -- 109,361 Multi-Tenant
Oakville Entertainment Centrum(8) Toronto, ON 3/04 -- -- 127,071 Multi-Tenant
Mississauga Entertainment Centru(8) Toronto, ON 3/04 -- -- 92,657 Multi-Tenant
Kanata Entertainment Centrum(8) Ottawa, ON 3/04 -- -- 258,772 Multi-Tenant
Vland Chicago, IL 7/04 -- -- 7,500 Vland Warrenville
Stir Crazy Chicago, IL 9/04 -- -- 6,500 Stir Crazy Cafe
------ ------- ---------
Subtotal -- -- 1,294,436
------ ------- ---------
Total 1,191 238,896 6,460,395
====== ======= =========
(1) Third party ground leased property. Although we are the tenant under the
ground leases and have assumed responsibility for performing the
obligations thereunder, pursuant to the leases, the theatre tenants are
responsible for performing our obligations under the ground leases.
(2) In addition to the theatre property itself, we have acquired land parcels
adjacent to the theatre property, which we have or intend to ground lease
or sell to restaurant or other entertainment themed operators.
(3) Property is included as security for a $105 million mortgage note payable.
(4) Property is included as security for $20 million in mortgage notes
payable.
(5) Property is included in the Atlantic-EPR I joint venture.
(6) Property is included as security for $125 million in mortgage notes
payable.
(7) Property is included as security for a $17 million mortgage note payable.
(8) Property is included as security for a $97 million mortgage note payable.
(9) Property is included as security for a $150 million revolving credit
facility.
(10) Property is included as security for a $155.5 million mortgage.
(11) Property is included in the Atlantic-EPR II joint venture.
(12) Property is included as security for a $66 million and $4 million credit
facility.
OFFICE LOCATION. Our executive office is located in Kansas City, Missouri and is
leased from a third party landlord. The office occupies approximately 10,960
square feet with annual rentals of $198,000 and includes annual fixed rent
escalations of $.50 per square foot. The lease expires in December, 2009.
TENANTS AND LEASES
Our existing leases on rental property (on a consolidated basis - excluding
joint venture property) provide for aggregate annual rentals of approximately
$132 million (not including periodic rent escalations or percentage rent). The
megaplex theatre leases have an average remaining base term lease life of 13.2
years and may be extended for predetermined extension terms at the option of the
tenant. The theatre leases are typically triple-net leases that require the
tenant to pay substantially all expenses associated with the operation of the
properties, including taxes, other governmental charges, insurance, utilities,
service, maintenance and any ground lease payments.
13
PROPERTY ACQUISITIONS IN 2004
The following table lists the rental properties we acquired or developed during
2004:
PROPERTY LOCATION TENANT
- --------------------------------- --------------- -------------------------------------
Kanata Entertainment Centrum Ottawa, ON AMC and various restaurant and retail
Oakville Entertainment Centrum Toronto, ON AMC and various restaurant and retail
Mississauga Entertainment Centrum Toronto, ON AMC and various restaurant and retail
Whitby Entertainment Centrum Toronto, ON AMC and various restaurant and retail
Mesa Grand 24 Phoenix, AZ AMC
Deer Valley 30 Phoenix, AZ AMC
Hamilton 24 Hamilton, NJ AMC
Putting Edge Westminster, CO Putting Edge Corporation
Vland Multi-tenant Retail Chicago, IL Vland Warrenville
Grand Prairie 18 Peoria, IL Rave Motion Pictures
Lafayette Grand 16 Lafayette, LA Southern Theatres
Stir Crazy Chicago, IL Stir Crazy Cafe
Northeast Mall 18 Hurst, TX Rave Motion Pictures
The Grand D'Iberville 14 Biloxi, MS Southern Theatres
Melbourne 16 Melbourne, FL Rave Motion Pictures
Maximum Gamers Westminster, CO MGC Group
Pistons Hall of Fame Cafe Southfield, MI Sports Concept Management
Splitz Westminster, CO EPR TRS I, Inc. (1)
(1) A taxable REIT subsidiary of EPR.
ITEM 3. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in the
ordinary course of business, we are not presently involved in any litigation
nor, to our knowledge, is any litigation threatened against us or our
properties, which is reasonably likely to have a material adverse effect on our
liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth, for the quarterly periods indicated, the high
and low sales prices per share for our common shares on the New York Stock
Exchange ("NYSE") under the trading symbol "EPR" and the distributions declared.
SHARE PRICE DECLARED
HIGH LOW DISTRIBUTION
------ ------ ------------
2004:
Fourth quarter $45.00 $38.00 $0.5625
Third quarter 38.85 33.75 0.5625
Second quarter 41.55 31.57 0.5625
First quarter 40.91 33.71 0.5625
2003:
Fourth quarter $35.79 $30.70 $0.5000
Third quarter 32.71 28.22 0.5000
Second quarter 28.75 26.65 0.5000
First quarter 27.30 23.20 0.5000
The closing price for our common shares on the NYSE on February 28, 2005 was
$41.00 per share.
We declared quarterly distributions to common shareholders aggregating $2.25 per
common share in 2004 and $2.00 per common share in 2003.
While we intend to continue paying regular quarterly dividends, future dividend
declarations will be at the discretion of the Board of Trustees and will depend
on our actual cash flow, our financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Code, debt
covenants and other factors the Board of Trustees deems relevant. The actual
cash flow available to pay dividends may be affected by a number of factors,
including the revenues received from rental properties, our operating expenses,
debt service on our borrowings, the ability of lessees to meet their obligations
to us and any unanticipated capital expenditures (See "Risk Factors - We cannot
assure you we will continue paying dividends at historical rates," in Item 1,
and "Liquidity and Capital Resources" in Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). Our Series A
preferred shares have a fixed dividend rate of 9.50% and our Series B preferred
shares have a fixed dividend rate of 7.75%.
On February 28, 2005, there were approximately 639 holders of record of our
outstanding common shares.
As a company with shares listed on the NYSE, we are required to comply with the
corporate governance rules of the NYSE. Our CEO is required to certify to the
NYSE that we are in compliance with the governance rules not later than 30 days
after the date of each annual shareholder meeting. Our CEO complied with this
requirement in 2004. We also filed with the SEC as exhibits to our annual report
on Form 10-K for the year ended December 31, 2003 the certifications of our CEO
and CFO required under Section 302 of the Sarbanes-Oxley Act.
15
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
---------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Total revenue $124,980 91,160 71,610 54,667 53,287
Property operating expense, net 2,322 698 201 -- --
General and administrative expense 4,716 3,859 2,293 2,507 1,850
Costs associated with loan
refinancing 1,134 -- -- -- --
Interest expense, net 38,054 30,570 24,475 20,334 18,909
Depreciation and amortization 23,365 16,359 12,862 10,209 10,184
Amortization of non-vested shares 1,377 926 1,048 240 276
-------- ------ ------ ------ ------
Income before minority interests,
income from joint ventures and
gain on sale of real estate 54,012 38,748 30,731 21,377 22,068
Gain on sale of real estate -- -- 202 -- --
Minority interests (953) (1,555) (1,195) -- --
Equity in income from joint ventures 654 401 1,421 2,203 2,104
Preferred dividend requirements (5,463) (5,463) (3,225) -- --
-------- ------ ------ ------ ------
Net income available to
common shareholders $ 48,250 32,131 27,934 23,580 24,172
======== ====== ====== ====== ======
Net income per common share:
Basic $ 2.12 1.81 1.66 1.60 1.63
Diluted 2.07 1.77 1.64 1.60 1.63
Weighted average number of
common shares outstanding:
Basic 22,721 17,780 16,791 14,715 14,786
Diluted 23,664 19,051 17,762 14,783 14,810
Cash dividends declared per
common share $ 2.25 2.00 1.90 1.80 1.76
DECEMBER 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net real estate investments $1,144,553 900,096 692,922 530,280 472,795
Total assets 1,213,448 965,918 730,387 583,351 513,534
Common dividends payable 14,097 9,829 8,162 6,659 6,479
Preferred dividends payable 1,366 1,366 1,366 -- --
Long-term debt 592,892 506,555 346,617 314,766 244,547
Total liabilities 620,059 521,509 361,834 325,223 252,915
Minority interests 6,049 21,630 15,375 -- --
Shareholders' equity 587,340 422,779 353,178 258,128 260,619
ITEM 7. 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 Annual Report on Form
10-K. The forward-looking statements included in this discussion and elsewhere
in this Form 10-K 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
16
expressed in our forward-looking statements as a result of a number of factors,
including but not limited to those discussed in this Item and in Item 1
"Business - Risk Factors".
OVERVIEW
Our primary business strategy is to purchase real estate (land, buildings and
other improvements) that we lease to operators of destination-based
entertainment and entertainment-related properties. As of December 31, 2004, we
had invested approximately $1.2 billion (before accumulated depreciation) in 57
megaplex theatre properties and various restaurant, retail and other properties
located in 22 states and Ontario, Canada. As of December 31, 2004, we had
invested approximately $23.1 million in development land and construction in
progress for theatre and theatre-related development.
Substantially all of our single-tenant 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 governmental charges, insurance, utilities, repairs
and maintenance. A majority of our revenues are derived from rents received or
accrued under long-term, triple-net leases. Tenants at our multi-tenant
properties pay CAM charges to defray their pro rata portion of these costs.
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, evaluating 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 financial
reporting purposes.
Our property acquisitions and development financing commitments are financed by
cash from operations, borrowings under our secured revolving variable rate
credit facility, long-term mortgage debt and the sale of equity securities. It
has been our strategy to structure leases and financings to ensure a positive
spread between our cost of capital and the rentals paid by our tenants. We have
primarily acquired new properties that are pre-leased to a single tenant or
multi-tenant properties that have a high occupancy rate. We do not typically
develop or acquire properties on a speculative basis or that are not pre-leased
or substantially occupied. We have recently become more involved in development
financing arrangements, in which we acquire the underlying land, finance the
construction of a theatre on the land and lease the theatre upon completion of
construction to the operator on a triple net basis. We have also entered into
joint ventures formed to own and lease single properties. We intend to continue
entering into some or all of these types of arrangements in the foreseeable
future.
Our primary challenges have been locating suitable properties, negotiating
favorable lease and financing terms, and managing our portfolio as we have
continued to grow. Because of our emphasis on the entertainment sector of the
real estate industry and the knowledge and industry relationships of our
management, we have enjoyed favorable opportunities to acquire, finance and
lease properties. We believe those opportunities will continue during 2005.
Our business is subject to a number of risks and uncertainties, including those
described in "Risk Factors" in Item 1 of this report.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions in certain circumstances that affect amounts reported in the
accompanying consolidated financial statements and related notes. In preparing
these financial statements, management has made its best estimates and
assumptions that affect the reported assets and liabilities. The most
significant assumptions and estimates relate to revenue
17
recognition, depreciable lives of the real estate, the valuation of real estate
and accounting for real estate acquisitions. Application of these assumptions
requires the exercise of judgment as to future uncertainties and, as a result,
actual results could differ from these estimates.
Revenue Recognition
Rents that are fixed and determinable are recognized on a straight-line basis
over the minimum term of the lease. Base rent escalation in most of our leases
is dependent upon increases in the Consumer Price Index (CPI) and accordingly,
management does not include any future base rent escalation amounts on these
leases in current revenue. Most of our leases provide for percentage rents based
upon the level of sales achieved by the tenant. These percentage rents are
recognized once the required sales level is achieved.
Real Estate Useful Lives
We are required to make subjective assessments as to the useful lives of our
properties for the purpose of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on our net income. Depreciation and amortization are provided on
the straight-line method over the useful lives of the assets, as follows:
Buildings 40 years
Tenant improvements Base term of
lease or useful
life, whichever
is shorter
Furniture, fixtures and equipment 3 to 7 years
Impairment of Real Estate Values
We are required to make subjective assessments as to whether there are
impairments in the value of our rental properties. These estimates of impairment
may have a direct impact on our consolidated financial statements.
We apply the provisions of Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We
assess the carrying value of our rental properties whenever events or changes in
circumstances indicate that the carrying amount of a property may not be
recoverable. Certain factors that may occur and indicate that impairments may
exist include, but are not limited to: underperformance relative to projected
future operating results, tenant difficulties and significant adverse industry
or market economic trends. No such indicators existed during 2004. If an
indicator of possible impairment exists, a property is evaluated for impairment
by comparing the carrying amount of the property to the estimated undiscounted
future cash flows expected to be generated by the property. If the carrying
amount of a property exceeds its estimated future cash flows on an undiscounted
basis, an impairment charge is recognized in the amount by which the carrying
amount of the property exceeds the fair value of the property. Management
estimates fair value of our rental properties based on projected discounted cash
flows using a discount rate determined by management to be commensurate with the
risk inherent in the Company. Management did not record any impairment charges
for 2004.
Real Estate Acquisitions
Upon acquisitions of real estate properties, we make subjective estimates of the
fair value of acquired tangible assets (consisting of land, building, tenant
improvements, and furniture, fixtures and equipment) and identified intangible
assets and liabilities (consisting of above and below market leases, in-place
leases, tenant relationships and assumed financing that is determined to be
above or below market terms) in accordance with Statement of Financial
Accounting Standards (SFAS) No.141, Business Combinations. We utilize methods
similar to those used by independent appraisers in making these estimates. Based
on
18
these estimates, we allocate the purchase price to the applicable assets and
liabilities. These estimates have a direct impact on our net income.
RECENT DEVELOPMENTS
During the three months ended December 31, 2004, we completed development of
three megaplex theatre properties in Hurst, Texas, Biloxi, Mississippi and
Melbourne, Florida. The Northeast Mall 18 in Hurst, Texas is operated by Rave
Motion Pictures and was completed for a total development cost (including land
and building) to us of approximately $16.7 million. The Grand D'Iberville 14 in
Biloxi, Mississippi is operated by Southern Theatres and was completed for a
total development cost (including land and building) to us of approximately
$10.0 million. The Melbourne 16 in Melbourne, Florida is operated by Rave Motion
Pictures and was completed for a total development cost (including land and
building) to us of approximately $12.6 million. All of these theatres are leased
under long-term triple-net leases.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
Rental revenue was $124.4 million for the year ended December 31, 2004, as
compared to $90.0 million for the year ended December 31, 2003. The $34.4
million increase resulted primarily from property acquisitions completed in 2003
and 2004, base rent increases and percentage rents on existing properties.
Percentage rents of $2.2 million and $1.9 million were recognized in 2004 and
2003, respectively. Straight-line rents of $2.2 million were recognized in 2004
compared to no straight-line rents recognized in 2003.
Our property operating expenses, net totaled $2.3 million for the year ended
December 31, 2004, as compared to $698 thousand for the year ended December 31,
2003. The $1.6 million increase resulted primarily from property acquisitions in
2003 and 2004. These expenses, net of tenant reimbursements, arise from the
operations of our retail properties in Southfield, Michigan, Greenville, South
Carolina, Westminster, Colorado, Tampa, Florida, New Rochelle, New York,
Suffolk, Virginia and Ontario, Canada.
Our general and administrative expenses totaled $4.7 million for the year ended
December 31, 2004 compared to $3.9 million for the year ended December 31, 2003.
The increase is primarily due to the following:
- 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 and increases
in the size of our real estate portfolio.
- A $99 thousand expense incurred for professional fees on a project
that was ultimately not executed.
- An increase in payroll and related expenses attributable to
increases in base compensation, bonus awards, and payroll taxes
related to the vesting of stock grants and stock bonuses, and the
addition of employees.
- Increases in franchise and other miscellaneous taxes paid.
Costs associated with loan refinancing in 2004 were $1.1 million. These costs
related to the termination of our iStar credit facility and consisted of a
prepayment penalty of $405 thousand and the write-off of $729 thousand of
remaining unamortized financing fees. No such costs were incurred in 2003.
19
Our net interest expense increased by $7.5 million to $38.1 million for the year
ended December 31, 2004 from $30.6 million for the year ended December 31, 2003.
The increase in net interest expense primarily resulted from increases in
long-term debt used to finance real estate acquisitions.
Depreciation and amortization expense, including amortization of non-vested
shares, totaled $24.7 million for the year ended December 31, 2004 compared to
$17.3 million for the year ended December 31, 2003. The $7.4 million increase
resulted from the property acquisitions completed in 2003 and 2004 and recent
grants of restricted shares to management. Amortization of non-vested shares was
$1.4 million and $0.9 million in 2004 and 2003, respectively.
Income from joint ventures totaled $654 thousand for the year ended December 31,
2004 compared to $401 thousand for the same period in 2003. The increase is due
to the addition of the Atlantic-EPR II joint venture on March 1, 2004.
For the year ended December 31, 2004, minority interest in net income was $953
thousand as compared to $1.6 million in the prior year period. The decrease is
due primarily to the conversion of the preferred interest in our subsidiary, EPT
Gulf States, LLC, as of September 20, 2004 to 857,145 common shares of the
Company.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Rental revenue was $90.0 million for the year ended December 31, 2003, as
compared to $71.6 million for the year ended December 31, 2002. The $18.4
million increase resulted primarily from property acquisitions completed in 2002
and 2003, base rent increases and percentage rents on existing properties. In
addition, other revenue increased by $1.2 million in 2003 due to a payment
received related to the cancellation of the Van's Skate Park lease at the
entertainment retail center in Westminster, Colorado, which was closed during
the third quarter, and income received from claims we filed in the Loews
Cineplex bankruptcy proceedings. Percentage rents of $1.9 million and $600
thousand were recognized in 2003 and 2002, respectively.
Our property operating expenses totaled $698 thousand for the year ended
December 31, 2003, as compared to $201 thousand for the year ended December 31,
2002. These expenses, net of tenant reimbursements, arise from the operations of
our retail properties in Southfield, Michigan, Greenville, South Carolina,
Westminster, Colorado, Tampa, Florida, New Rochelle, New York and Suffolk,
Virginia.
Our general and administrative expenses were $3.9 million for the year ended
December 31, 2003, as compared to $2.3 million for the year ended December 31,
2002. The increase is primarily due to the following:
- Increases in insurance expense, including premiums for both Director
and Officer insurance and property and casualty insurance compared
to 2002 due to an overall increase in premiums in the insurance
market.
- An increase in fees paid for professional services, primarily for
legal fees related to compliance with the Sarbanes-Oxley Act.
- 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.
20
- Increased costs associated with our Board of Trustees meetings and
increases in trustee compensation.
- Increases in franchise and other miscellaneous taxes paid.
Our net interest expense increased by $6 million to $30.6 million for the year
ended December 31, 2003 from $24.5 million for the year ended December 31, 2002.
The increase in net interest expense primarily resulted from increases in
long-term debt used to finance real estate acquisitions.
Depreciation and amortization expense totaled $16.4 million for the year ended
December 31, 2003 compared to $12.9 million for the same period in 2002. The
$3.5 million increase resulted from the property acquisitions completed in 2002
and 2003. Amortization of non-vested shares was $.9 million and $1.0 million in
2003 and 2002, respectively.
Income from joint venture totaled $401 thousand for the year ended December 31,
2003 compared to $1.4 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 throughout 2003 compared to 76.9% weighted average interest in
2002).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $11.3 million at December 31, 2004. In addition,
we had restricted cash of $12.8 million at December 31, 2004 required in
connection with debt service, payment of real estate taxes and capital
improvements.
Mortgage Debt and Credit Facilities
As of December 31, 2004, we had total debt outstanding of $592.9 million. All of
our debt is mortgage debt secured by a substantial portion of our rental
properties. As of December 31, 2004, $565.9 million of debt outstanding was
fixed rate debt with a weighted average interest rate of approximately 6.5%. All
of our debt is described in note 6 to the consolidated financial statements in
this Form 10-K.
At December 31, 2004, we had $27 million in debt outstanding under our $150
million secured revolving variable rate credit facility that bears interest at a
floating rate and is secured by nine theatre properties, two theatre and retail
mix properties and one retail mix property. The credit facility matures in March
of 2007.
Our principal investing activity is the purchase of rental property, which is
generally financed with mortgage debt and the proceeds from equity offerings.
Continued growth of our rental property portfolio will depend in part on our
continued ability to access funds through additional borrowings and equity
security offerings.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring
corporate operating expenses, debt service requirements and distributions to
shareholders. We meet these requirements primarily through cash provided by
operating activities. Cash provided by operating activities was $84.4 million
for the year ended December 31, 2004, $51.0 million for the year ended December
31, 2003 and $45.9 million for the year ended December 31, 2002. We anticipate
that our cash on hand, cash from operations, and funds available under our
secured revolving variable rate credit facility will provide adequate liquidity
to fund
21
our operations, make 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.
Long-term liquidity requirements at December 31, 2004 consisted primarily of
maturities of long-term debt. Contractual obligations as of December 31, 2004
are as follows (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS 2005 2006 2007 2008 2009 THEREAFTER TOTAL
- --------------------------- ----------- ------- ------ ------- ------ ---------- -------
Long Term Debt Obligations $ 33,395 120,867 39,243 102,030 11,622 285,735 592,892
Operating Lease Obligations 198 203 209 214 220 - 1,044
----------- ------- ------ ------- ------ ------- -------
Total $ 33,593 121,070 39,452 102,244 11,842 285,735 593,936
=========== ======= ====== ======= ====== ======= =======
As further described in note 17 to the consolidated financial statements in this
Form 10-K, we completed an offering of Series B preferred shares in January
2005, generating net proceeds (before expenses) of $77.5 million. In February of
2005, we used proceeds from this offering to payoff $18.8 million in mortgage
debt which matured on February 1, 2005.
We believe that we will be able to obtain financing in order to repay our debt
obligations by refinancing the properties as the debt comes due. However, there
can be no assurance that additional financing or capital will be available, or
that terms will be acceptable or advantageous to us.
Our primary use of cash after paying operating expenses, debt service and
distributions to shareholders is in the acquisition of properties. We have
identified approximately $130 million in properties for acquisition in 2005. We
expect to finance these acquisitions with borrowings under our secured revolving
variable rate credit facility, as well as long-term borrowings and equity
financing alternatives. The availability and terms of any such financing will
depend upon market and other conditions. If we borrow the maximum amount
available under our secured revolving variable rate credit facility, there can
be no assurance that we will be able to obtain additional acquisition financing,
which would not affect our liquidity, but would affect our ability to grow (See
"We must obtain new financing in order to grow" and "Risks that may affect the
market price of our shares" under "Risk Factors").
In addition to the contractual obligations listed in the table above, we had
four theatre projects under construction at December 31, 2004. The properties
are being developed by and have been pre-leased to the prospective tenants. The
cost of development is paid by us either in periodic draws or upon successful
completion of construction. These theatres will have a total of 60 screens and
their total development costs (including land) will be approximately $38.8
million. Through December 31, 2004, we have invested $11.7 million in these
projects (including land), and have commitments to fund approximately $27.1
million of additional improvements. We plan to fund development primarily with
funds generated by debt financing and/or equity offerings. If we determine that
construction is not being completed in accordance with the terms of the
development agreement, we can discontinue funding construction draws or refuse
to purchase the completed theatre. Upon successful completion of construction,
we have agreed to lease these theatres to the theatre operators under long-term
triple-net leases at pre-determined rates.
22
Off Balance Sheet Arrangements
At December 31, 2004, we had a 20% investment interest in two unconsolidated
real estate joint ventures, Atlantic-EPR I and Atlantic-EPR II, which are
accounted for under the equity method of accounting. We do not anticipate any
material impact on our liquidity as a result of any commitments that may arise
involving those joint ventures. The following is a brief description of the
joint ventures:
On May 11, 2000, we completed the formation of a joint venture partnership,
Atlantic-EPR I, a Delaware general partnership, with Atlantic of Hamburg,
Germany (Atlantic), whereby we contributed the AMC Cantera 30 theatre with a
carrying value of $33.5 million in exchange for cash proceeds from mortgage
financing of $17.8 million and a 100% interest in Atlantic-EPR I. During 2000
through 2002, we sold to Atlantic a total of an 80% interest in Atlantic-EPR I
in exchange for $14.3 million in cash. The final payment by Atlantic of $8.4
million was paid to us in January 2003. The joint venture agreement allows
Atlantic to exchange up to a maximum of 10% of its ownership interest in
Atlantic-EPR I per year, beginning in 2005, for common shares of EPR or, at our
discretion, the cash value of those shares as defined in the partnership
agreement.
We account for our investment in Atlantic-EPR I under the equity method of
accounting. We recognized income of $410, $401, and $1,421 (in thousands) from
our investment in this joint venture during 2004, 2003 and 2002, respectively.
On March 1, 2004, we completed the formation of the second joint venture
partnership, Atlantic-EPR II, a Delaware general partnership, with Atlantic,
whereby we contributed the AMC Tampa Veterans 24 theatre with a carrying value
of $24.2 million and related mortgage debt of $14.6 million for a 100% interest
in Atlantic-EPR II. Simultaneously on March 1, 2004, we sold to Atlantic an 80%
interest in Atlantic-EPR II in exchange for $8.2 million in cash. The joint
venture agreement allows Atlantic to exchange up to a maximum of 10% of its
ownership interest in Atlantic-EPR II per year, beginning in 2007, for common
shares of EPR or, at our discretion, the cash value of those shares as defined
in the partnership agreement.
We account for our investment in Atlantic-EPR II under the equity method of
accounting. We recognized income of $244 thousand from our investment in this
joint venture during 2004.
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 our
operations or our cash flows or liquidity as defined by GAAP.
23
The following tables summarize the Company's FFO for the years ended December
31, 2004 and December 31, 2003 (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------
2004 2003
----------- -------
Net income available to common shareholders $ 48,250 32,131
Add: Real estate depreciation and amortization 22,379 16,175
Add: Allocated share of joint venture depreciation 223 135
----------- ------
Basic Funds From Operations 70,852 48,441
Add: minority interest in net income 750 1,500
----------- ------
Diluted Funds From Operations $ 71,602 49,941
=========== ======
FFO per common share:
Basic $ 3.12 2.72
Diluted 3.03 2.62
Shares used for computation (in thousands):
Basic 22,721 17,780
Diluted 23,664 19,051
Other financial information:
Straight-lined rental revenue $ 2,248 -
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46 (FIN 46) (revised December 2003), Consolidation of
Variable Interest Entities, which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the entity.
FIN 46R was issued in January 2003 and replaced FIN 46, Consolidation of
Variable Interest Entities. We adopted FIN 46R on March 31, 2004. The adoption
did not have any effect on our 2004 financial statements.
FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial
instruments within its scope. For EPR, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise was
effective as of January 1, 2004, except for mandatory redeemable financial
instruments. For certain mandatory redeemable financial instruments, the
Statement was effective for EPR on January 1, 2005. The effective date has been
deferred indefinitely for certain other types of mandatory redeemable financial
instruments. As of December 31, 2004, our financial statements have not been
impacted by the issuance of FASB Statement No. 150.
FASB Statement No. 123, Accounting for Stock-Based Compensation, was revised in
December 2004 ("Revised Statement"). The Revised Statement, Share Based Payment,
also supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and its related implementation guidance. The Revised Statement establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that
24
may be settled by the issuance of those equity instruments. For EPR, the Revised
Statement is effective July 1, 2005. The adoption of this Revised Statement is
not expected to have a material impact on our financial statements.
INFLATION
Investments by EPR are financed with a combination of equity and secured
mortgage indebtedness. During inflationary periods, which are generally
accompanied by rising interest rates, our ability to grow may be adversely
affected because the yield on new investments may increase at a slower rate than
new borrowing costs.
All of our megaplex theatre leases provide for base and participating rent
features. To the extent inflation causes tenant revenues at our properties to
increase over baseline amounts, we would participate in those revenue increases
through our right to receive annual percentage rent. Our leases also generally
provide for escalation in base rents in the event of increases in the Consumer
Price Index, with a limit of 2% per annum, or fixed periodic increases.
Our theatre leases are triple-net leases requiring the tenants to pay
substantially all expenses associated with the operation of the properties,
thereby minimizing our exposure to increases in costs and operating expenses
resulting from inflation. A portion of our retail and restaurant leases are
non-triple-net leases. These retail leases represent less than 15% of our total
real estate square footage. To the extent any of those leases contain fixed
expense reimbursement provisions or limitations, we may be subject to increases
in costs resulting from inflation that are not fully passed through to tenants.
FORWARD LOOKING INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
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. OUR 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 THIS
REPORT. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENTS.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, primarily relating to potential losses due to
changes in interest rates. We seek 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. We also have a $150 million secured revolving
line of credit that bears interest at a floating rate that we use to acquire
properties and finance our development commitments.
We are 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 our borrowings are subject to mortgages or contractual agreements
which limit the amount of indebtedness we may incur. Accordingly, if we are
unable to raise additional equity or borrow money due to these limitations, our
ability to acquire additional properties may be limited.
The following table presents the principal amounts, weighted average interest
rates, and other terms required by year of expected maturity to evaluate the
expected cash flows and sensitivity to interest rate changes as of December 31:
Expected Maturities (in millions)
ESTIMATED
2005 2006 2007 2008 2009 THEREAFTER TOTAL FAIR VALUE
---- ---- ---- ---- ---- ---------- ----- ----------
December 31, 2004:
Fixed rate debt $ 33.4 120.9 12.3 102.0 11.6 285.7 565.9 570.2
Average interest rate 8.3% 7.3% 6.2% 6.7% 6.1% 6.0% 6.5% -
Variable rate debt $ - - 27.0 - - - 27.0 27.0
Average interest rate - - 4.7% - - - 4.7% -
(as of December 31, 2004)
ESTIMATED
2004 2005 2006 2007 2008 THEREAFTER TOTAL FAIR VALUE
---- ---- ---- ---- ---- ---------- ----- ----------
December 31, 2003:
Fixed rate debt $ 10.8 30.0 117.4 8.4 8.9 245.1 420.6 425.3
Average interest rate 8.9% 8.5% 7.3% 6.0% 6.0% 6.1% 6.7% -
Variable rate debt $ 66.0 - 20.0 - - - 86.0 86.0
Average interest rate 3.6% - 5.1% - - - 4.0% -
(as of December 31, 2003)
We have not engaged extensively in the use of derivatives to manage our interest
rate and market risk due to our limited use of variable rate debt. For a
discussion of derivative financial instruments and interest rate hedging
activity, see note 10 to the consolidated financial statements.
We financed the acquisition of our Canadian properties with non-recourse fixed
rate mortgage loans from a Canadian lender in the original aggregate principal
amount of approximately US $97 million. The loans were made and are payable by
us in Canadian dollars, and the rents received from tenants of the properties
are payable in Canadian dollars. Although we have attempted to mitigate the
impact of foreign currency exchange risk on our Canadian properties by matching
Canadian dollar debt financing with Canadian dollar rents, a significant change
in the exchange rate between the Canadian and U.S. dollars could have a material
impact on our earnings.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Entertainment Properties Trust
CONTENTS
Reports of Independent Registered Public Accounting Firm................................................ 28
Audited Financial Statements
Consolidated Balance Sheets ............................................................................ 31
Consolidated Statements of Income ...................................................................... 32
Consolidated Statements of Changes in Shareholders' Equity.............................................. 33
Consolidated Statements of Comprehensive Income ........................................................ 34
Consolidated Statements of Cash Flows .................................................................. 35
Notes to Consolidated Financial Statements ............................................................. 36
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts ........................................................ 58
Schedule III - Real Estate and Accumulated Depreciation ................................................ 59
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees
Entertainment Properties Trust:
We have audited the accompanying consolidated balance sheets of Entertainment
Properties Trust (the Company) as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in shareholders' equity,
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2004. In connection with our audit of the consolidated
financial statements, we have also audited the accompanying financial statement
schedules listed in the Index at Item 15(2). These consolidated financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Entertainment
Properties Trust as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 4, 2005 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
KPMG LLP
Kansas City, Missouri
March 4, 2005
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees
Entertainment Properties Trust:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting appearing under
item 9A, that Entertainment Properties Trust (the Company) maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and trustees of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Entertainment Properties Trust
maintained effective internal control over financial reporting as of December
31, 2004 is fairly stated, in all material respects, based on criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring
29
Organizations of the Treadway Commission (COSO). Also, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Entertainment Properties Trust as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in shareholders' equity,
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2004, and the related financial statement schedules,
and our report dated March 4, 2005 expressed an unqualified opinion on those
consolidated financial statements and related financial statement schedules.
KPMG LLP
Kansas City, Missouri
March 4, 2005
30
ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(In thousands except share and per share data)
DECEMBER 31
------------------------
2004 2003
---- ----
ASSETS
Rental properties, net $ 1,121,409 870,944
Property under development 23,144 29,152
Investment in joint ventures 2,541 1,336
Cash and cash equivalents 11,255 30,527
Restricted cash 12,794 6,495
Intangible assets, net 10,900 693
Deferred financing costs, net 12,730 11,405
Other assets 18,675 15,366
-------------- -------
Total assets $ 1,213,448 965,918
============== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 10,070 2,864
Common dividends payable 14,097 9,829
Preferred dividends payable 1,366 1,366
Unearned rents 1,634 895
Long-term debt 592,892 506,555
-------------- -------
Total liabilities 620,059 521,509
Commitments and contingencies -- --
Minority interests 6,049 21,630
Shareholders' equity:
Common shares, $.01 par value. Authorized
50,000,000 shares; issued 25,578,472 and 20,129,749
shares at December 31, 2004 and 2003, respectively 256 201
Preferred shares, $.01 par value. Authorized
5,000,000 shares; issued 2,300,000 shares 23 23
Additional paid-in-capital 618,715 454,195
Treasury shares, at cost: 517,421 and 472,200 common
shares at December 31, 2004 and 2003, respectively (8,398) (6,533)
Loans to shareholders (3,525) (3,525)
Non-vested shares (2,338) (1,625)
Accumulated other comprehensive income 7,480 --
Distributions in excess of net income (24,873) (19,957)
-------------- -------
Shareholders' equity 587,340 422,779
-------------- -------
Total liabilities and shareholders' equity $ 1,213,448 965,918
============== =======
See accompanying notes to consolidated financial statements.
31
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(In thousands except per share data)
YEAR ENDED DECEMBER 31,
-----------------------------
2004 2003 2002
--------- ------ ------
Rental revenue $ 124,423 89,965 71,610
Other revenue 557 1,195 -
--------- ------ ------
Total revenue 124,980 91,160 71,610
--------- ------ ------
Property operating expense, net 2,322 698 201
General and administrative expense,
excluding amortization of non-vested
shares below 4,716 3,859 2,293
Costs associated with loan refinancing 1,134 - -
Interest expense, net 38,054 30,570 24,475
Depreciation and amortization 23,365 16,359 12,862
Amortization of non-vested shares 1,377 926 1,048
--------- ------ ------
Income before gain on
sale of real estate, income
from joint ventures, and
minority interests 54,012 38,748 30,731
Gain on sale of real estate - - 202
Equity in income from joint ventures 654 401 1,421
Minority interests (953) (1,555) (1,195)
--------- ------ ------
Net income 53,713 37,594 31,159
Preferred dividend requirements (5,463) (5,463) (3,225)
--------- ------ ------
Net income available to
common shareholders $ 48,250 32,131 27,934
========= ====== ======
Basic net income per common share $ 2.12 1.81 1.66
========= ====== ======
Diluted net income per common share $ 2.07 1.77 1.64
========= ====== ======
Shares used for computation (in thousands):
Basic 22,721 17,780 16,791
Diluted 23,664 19,051 17,762
See accompanying notes to consolidated financial statements.
32
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------- --------------- PAID-IN TREASURY LOANS TO
SHARES PAR SHARES PAR CAPITAL SHARES SHAREHOLDERS
------ ----- ------ ------- ---------- -------- ------------
Balance at December 31, 2001 15,270 $ 153 - $ - 279,603 (6,533) (3,525)
Shares issued to Trustees 2 - - - 54 - -
Issuance of restricted share grants 62 1 - - 1,218 - -
Amortization of restricted share grants - - - - - - -
Net income - - - - - - -
Issuances of common shares in Dividend Reinvestment Plan 22 - - - 475 - -
Issuance of common shares, net of costs of $1.03 million 2,300 23 - - 42,685 - -
Issuance of preferred shares, net of costs of $1.6 million - - 2,300 23 55,412 - -
Dividends to common shareholders ($1.90 per share) - - - - - - -
Dividends to preferred shareholders ($1.40 per share) - - - - - - -
------ ----- ----- ------- ------- ------ ------
Balance at December 31, 2002 17,656 177 2,300 23 379,447 (6,533) (3,525)
Shares issued to Trustees 2 - - - 62 - -
Issuance of restricted share grants 54 1 - - 1,303 - -
Amortization of restricted share grants - - - - - - -
Stock option expense - - - - 25 - -
Net income - - - - - - -
Issuances of common shares in Dividend Reinvestment Plan 21 - - - 586 - -
Issuance of common shares, net of costs of $1.4 million 2,397 23 - - 72,772 - -
Dividends to common shareholders ($2.00 per share) - - - - - - -
Dividends to preferred shareholders ($2.375 per share) - - - - - - -
------ ----- ----- ------- ------- ------ ------
Balance at December 31, 2003 20,130 201 2,300 23 454,195 (6,533) (3,525)
Shares issued to Trustees 2 - - - 66 - -
Issuance of restricted share grants 56 1 - - 2,089 - -
Cancellation of common shares (1) - - - (50) - -
Amortization of restricted share grants - - - - - - -
Stock option expense - - - - 116 - -
Foreign currency translation adjustment - - - - - - -
Net income - - - - - - -
Issuances of common shares in Dividend Reinvestment Plan 23 - - - 837 - -
Issuances of common shares, net of costs of $3.5 million 5,190 52 - - 158,629 - -
Stock option exercises, net 178 2 - - 2,833 (1,865) -
Dividends to common shareholders ($2.25 per share) - - - - - - -
Dividends to preferred shareholders ($2.375 per share) - - - - - - -
------ ----- ----- ------- ------- ------ ------
Balance at December 31, 2004 25,578 $ 256 2,300 $ 23 618,715 (8,398) (3,525)
====== ===== ===== ======= ======= ====== ======
ACCUMULATED
OTHER DISTRIBUTIONS
NON-VESTED COMPREHENSIVE IN EXCESS OF
SHARES INCOME NET INCOME TOTAL
---------- -------------- ------------- -------
Balance at December 31, 2001 (1,076) - (10,494) 258,128
Shares issued to Trustees - - - 54
Issuance of restricted share grants (1,219) - - -
Amortization of restricted share grants 1,048 - - 1,048
Net income - - 31,159 31,159
Issuances of common shares in Dividend Reinvestment Plan - - - 475
Issuance of common shares, net of costs of $1.03 million - - - 42,708
Issuance of preferred shares, net of costs of $1.6 million - - - 55,435
Dividends to common shareholders ($1.90 per share) - - (32,604) (32,604)
Dividends to preferred shareholders ($1.40 per share) - - (3,225) (3,225)
------ ----- ------- -------
Balance at December 31, 2002 (1,247) - (15,164) 353,178
Shares issued to Trustees - - - 62
Issuance of restricted share grants (1,304) - - -
Amortization of restricted share grants 926 - - 926
Stock option expense - - - 25
Net income - - 37,594 37,594
Issuances of common shares in Dividend Reinvestment Plan - - - 586
Issuance of common shares, net of costs of $1.4 million - - - 72,795
Dividends to common shareholders ($2.00 per share) - - (36,924) (36,924)
Dividends to preferred shareholders ($2.375 per share) - - (5,463) (5,463)
------ ----- ------- -------
Balance at December 31, 2003 (1,625) - (19,957) 422,779
Shares issued to Trustees - - - 66
Issuance of restricted share grants (2,090) - - -
Cancellation of common shares - - - (50)
Amortization of restricted share grants 1,377 - - 1,377
Stock option expense - - - 116
Foreign currency translation adjustment - 7,480 - 7,480
Net income - - 53,713 53,713
Issuances of common shares in Dividend Reinvestment Plan - - - 837
Issuances of common shares, net of costs of $3.5 million - - - 158,681
Stock option exercises, net - - - 970
Dividends to common shareholders ($2.25 per share) - - (53,166) (53,166)
Dividends to preferred shareholders ($2.375 per share) - - (5,463) (5,463)
------ ----- ------- -------
Balance at December 31, 2004 (2,338) 7,480 (24,873) 587,340
====== ===== ======= =======
See accompanying notes to consolidated financial statements.
33
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Comprehensive Income
(In thousands)
YEAR ENDED DECEMBER 31,
-----------------------------
2004 2003 2002
------- ------ ------
Net income $53,713 37,594 31,159
Other comprehensive income:
Foreign currency translation adjustment 7,480 -- --
------- ------ ------
Comprehensive income $61,193 37,594 31,159
======= ====== ======
See accompanying notes to consolidated financial statements.
34
ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED DECEMBER 31,
-----------------------
2004 2003 2002
---- ---- ----
Operating activities:
Net income $ 53,713 37,594 31,159
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest in net income 953 1,555 1,195
Gain on sale of real estate - - (202)
Equity in income from joint ventures (654) (401) (1,421)
Depreciation and amortization 23,365 16,359 12,862
Amortization of deferred financing costs 3,299 2,771 2,111
Non-cash compensation expense to management and trustees 1,590 1,013 1,102
Costs associated with loan refinancing (non-cash portion) 729 - -
Increase in other assets (2,827) (5,450) (2,842)
Increase (decrease) in other accounts payable and accrued liabilities 3,509 836 (190)
Increase (decrease) in unearned rents 739 (3,275) 2,081
--------- -------- --------
Net cash provided by operating activities 84,416 51,002 45,855
--------- -------- --------
Investing activities:
Acquisition of rental properties and furniture, fixtures and equipment (224,744) (125,675) (161,514)
Net proceeds from sale of real estate and furniture, fixtures and equipment 5,100 - 3,533
Additions to property under development (41,197) (21,987) (2,160)
Distributions from joint ventures 811 486 1,735
Proceeds from sale of equity interest in joint venture 8,240 8,437 3,065
Proceeds from secured note receivable 5,000 - -
Investment in secured note receivable (5,000) (5,000) -
--------- -------- --------
Net cash used in investing activities (251,790) (143,739) (155,341)
--------- -------- --------
Financing activities:
Proceeds from long-term debt facilities 181,450 190,200 37,000
Principal payments on long-term debt (90,923) (100,263) (5,149)
Deferred financing fees paid (5,133) (7,550) (1,702)
Net proceeds from issuance of common shares 117,533 73,381 43,183
Net proceeds from issuance of preferred shares - - 55,435
Net proceeds from stock option exercises 970 - -
Distributions paid to minority interests (1,534) (1,875) (820)
Dividends paid to shareholders (54,363) (40,720) (32,960)
--------- -------- --------
Net cash provided by financing activities 148,000 113,173 94,987
Effect of exchange rate changes on cash 102 - -
--------- -------- --------
Net increase (decrease) in cash and cash equivalents (19,272) 20,436 (14,499)
Cash and cash equivalents at beginning of year 30,527 10,091 24,590
--------- -------- --------
Cash and cash equivalents at end of year $ 11,255 30,527 10,091
========= ======== ========
Supplemental schedule of non-cash activities:
Acquisition of rental properties in exchange for minority
interest in subsidiary $ - - 15,000
Conversion of minority interest for common shares 15,000 - -
Sale of equity interest in joint venture received in 2003 - - 8,359
Contribution of rental property to joint venture 24,186 - -
Debt assumed by joint venture 14,583 - -
Transfer of property under development to rental property 59,674 5,509 -
Assumption of debt of New Roc - 70,000 -
Issuance of shares and share grants to management and trustees 2,040 1,304 1,219
Issuance of shares in acquisition of rental properties 27,087 - -
Supplemental disclosure of cash flow information:
Cash paid during the period for interest 37,008 29,010 23,315
Cash paid for income taxes 765 - -
See accompanying notes to consolidated financial statements.
35
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
1. ORGANIZATION
DESCRIPTION OF BUSINESS
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 retail centers. At December 31, 2004, the Company owned 57
megaplex theatre properties, including three joint venture properties, located
in 22 states and Ontario, Canada. The Company's portfolio also includes six
entertainment retail centers located in Westminster, Colorado, New Rochelle, New
York and Ontario, Canada, other specialty properties and land parcels leased to
restaurant and retail operators adjacent to several of its theatre properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Entertainment
Properties Trust and its subsidiaries, all of which are wholly-owned except for
New Roc Associates, LP (New Roc). New Roc was acquired in October 2003 and is
71.4% owned. Minority interest expense related to New Roc was $203 thousand, $55
thousand and $0 for the years ended December 31, 2004, 2003 and 2002,
respectively. Total minority interest in New Roc was $6.0 million and $6.6
million at December 31, 2004 and 2003, respectively. All significant
inter-company transactions have been eliminated in consolidation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those estimates.
RENTAL PROPERTIES
Rental properties are carried at cost less accumulated depreciation. Costs
incurred for the acquisition of the properties are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, which generally are estimated to be 40 years for buildings and 3 to 7
years for furniture, fixtures and equipment. Tenant improvements, including
allowances, are depreciated over the shorter of the base term of the lease or
the estimated useful life. Expenditures for ordinary maintenance and repairs are
charged to operations in the period incurred. Significant renovations and
improvements which improve or extend the useful life of the asset are
capitalized and depreciated over their estimated useful life.
The Company applies Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", for the
recognition and measurement of impairment of long-lived assets to be held and
used. Management reviews a property for impairment whenever events or changes in
circumstances indicate that the carrying value of a property may not be
recoverable. The review of recoverability is based on an estimate of
undiscounted future cash flows expected to result from its use and eventual
disposition. If impairment exists due to the inability to recover the carrying
value of the property, an impairment loss is recorded to the extent that the
carrying value of the property exceeds its estimated fair value.
36
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
ACCOUNTING FOR ACQUISITIONS
For rental property acquisitions completed after June 30, 2001 (the effective
date of SFAS No. 141, "Business Combinations"), the Company considers the fair
values of both tangible and intangible assets or liabilities when allocating the
purchase price (plus any capitalized costs incurred during the acquisition).
Tangible assets may include land, building, tenant improvements, furniture,
fixtures and equipment. Intangible assets or liabilities may include values
assigned to in-place leases (including the separate values that may be assigned
to above-market and below-market in-place leases), the value of tenant
relationships, and any assumed financing that is determined to be above or below
market terms.
Most of the Company's rental property acquisitions do not involve in-place
leases. In such cases, the cost of the acquisition is allocated to the tangible
assets based on recent independent appraisals and management judgment. Because
the Company typically executes these leases simultaneously with the purchase of
the real estate, no value has been ascribed to in-place leases in these
transactions.
For rental property acquisitions involving in-place leases, the fair value of
the tangible assets is determined by valuing the property as if it were vacant
based on management's determination of the relative fair values of the assets.
Management determines the as if vacant fair value of a property using recent
independent appraisals or methods similar to those used by independent
appraisers. The aggregate value of intangible assets or liabilities is measured
based on the difference between the stated price plus capitalized costs and the
property as if vacant.
In determining the fair value of acquired in-place leases, the Company considers
many factors. On a lease-by-lease basis, management considers the present value
of the difference between the contractual amounts to be paid pursuant to the
leases and management's estimate of fair market lease rates. For above market
leases, management considers such differences over the remaining non-cancelable
lease terms and for below market leases, management considers such differences
over the remaining initial lease terms plus any fixed rate renewal periods. The
capitalized above-market lease values are amortized as a reduction of rental
income over the remaining non-cancelable terms of the respective leases. The
capitalized below market lease values are amortized to income over the remaining
initial lease terms plus any fixed rate renewal periods. Management considers
several factors in determining the discount rate used in the present value
calculations, including the credit risks associated with the respective tenants.
If debt is assumed in the acquisition, the determination of whether it is above
or below market is based upon a comparison of similar financing terms for
similar rental properties.
The fair value of acquired in-place leases also includes management's estimate,
on a lease-by-lease basis, of the present value of the following amounts: (i)
the value associated with avoiding the cost of originating the acquired in-place
leases (i.e. the market cost to execute the leases, including leasing
commissions, legal and other related costs); (ii) the value associated with lost
revenue related to tenant reimbursable operating costs estimated to be incurred
during the assumed re-leasing period, (i.e. real estate taxes, insurance and
other operating expenses); (iii) the value associated with lost rental revenue
from existing leases during the assumed re-leasing period; and (iv) the value
associated with avoided tenant improvement costs or other inducements to secure
a tenant lease. These values are amortized over the remaining initial lease term
of the respective leases.
The Company also determines the value, if any, associated with customer
relationships considering factors such as the nature and extent of the Company's
existing business relationship with the tenants, growth
37
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
prospects for developing new business with the tenants and expectation of lease
renewals. The value of customer relationship intangibles is amortized over the
remaining initial lease terms plus any renewal periods.
Management of the Company reviews the carrying value of intangible assets for
impairment on an annual basis. Intangible assets consist of the following at
December 31 (in thousands):
2004 2003
---- ----
In-place leases, net of accumulated
amortization of $778 thousand $10,207 $ -
and $0, respectively
Goodwill 693 693
------- -----
Total intangible assets, net $10,900 $ 693
======= =====
In-place leases, net at December 31, 2004 of approximately $10.2 million, relate
solely to four entertainment retail centers in Ontario, Canada that were
purchased on March 1, 2004. Goodwill at December 31, 2004 and 2003 relates
solely to the acquisition of New Roc that was acquired on October 27, 2003 (see
Note 11). Amortization expense related to in-place leases is computed using the
straight-line method and was $778 thousand for the twelve months ended December
31, 2004. The weighted average life for these in-place leases is 11 years. There
was no amortization expense related to in-place leases for the twelve months
ended December 31, 2003.
Future amortization of in-place leases at December 31, 2004 is as follows (in
thousands):
AMOUNT
-------
Year:
2005 $ 1,008
2006 1,008
2007 1,008
2008 1,008
2009 1,008
Thereafter 5,167
-------
Total $10,207
=======
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the related long-term
debt obligations.
CAPITALIZED DEVELOPMENT COSTS
The Company capitalizes certain costs that relate to property under development
including interest and development personnel costs.
38
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
OPERATING SEGMENT
The Company aggregates the financial information of all its properties into one
reportable segment because the properties all have similar economic
characteristics and provide similar services to similar types and classes of
customers.
REVENUE RECOGNITION
Rents that are fixed and determinable are recognized on a straight-line basis
over the base term of the lease. Base rent escalations in most of the Company's
megaplex theatre leases are dependent upon increases in the Consumer Price Index
(CPI) and accordingly, the Company does not include any future base rent
escalation amounts on these leases in current revenue. Straight-line rent
receivable is included in other assets and was $2.4 million at December 31,
2004. There was no straight-line rent receivable at December 31, 2003. In
addition, most of the Company's tenants are subject to additional rents if gross
revenues of the properties exceed certain thresholds defined in the lease
agreements (percentage rents). Percentage rents are recognized at the time when
specific triggering events occur as provided by the lease agreements. Percentage
rents of $2.2 million, $1.9 million and $600 thousand were recognized in 2004,
2003 and 2002, respectively.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable, included in other assets, are reduced by an allowance for
amounts that may become uncollectible in the future. The Company's receivable
balance is comprised primarily of rents and operating cost recoveries due from
tenants as well as accrued rental rate increases to be received over the life of
the existing leases. The Company regularly evaluates the adequacy of its
allowance for doubtful accounts. The evaluation primarily consists of reviewing
past due account balances and considering such factors as the credit quality of
the Company's tenants, historical trends of the tenant and/or other debtor,
current economic conditions and changes in customer payment terms. Additionally,
with respect to tenants in bankruptcy, the Company estimates the expected
recovery through bankruptcy claims and increases the allowance for amounts
deemed uncollectible. If the Company's assumptions regarding the collectiblity
of accounts receivable prove incorrect, the Company could experience write-offs
of the accounts receivable or accrued straight-line rents receivable in excess
of its allowance for doubtful accounts. The allowance for doubtful accounts was
$93 thousand and $60 thousand at December 31, 2004 and 2003, respectively.
INCOME TAXES
The Company operates in a manner intended to enable it to qualify as a REIT
under the Internal Revenue Code (the Code). A REIT which distributes at least
90% of its taxable income to its shareholders each year and which meets certain
other conditions is not taxed on that portion of its taxable income which is
distributed to its shareholders. The Company intends to continue to qualify as a
REIT and distribute substantially all of its taxable income to its shareholders.
In 2004, the Company acquired certain real estate operations that are subject to
income tax in Canada. Also in 2004, the Company formed certain taxable REIT
subsidiaries, as permitted under the Code, through which it conducts certain
business activities. The taxable REIT subsidiaries are subject to federal and
state income taxes on their net taxable income.
Because the Company qualified as a REIT and distributed the necessary amount of
taxable income, and the income tax consequences of the Company's Canadian real
estate operations and taxable REIT subsidiaries
39
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
were not significant, no provision for income taxes was recorded for the years
ended December 31, 2004, 2003 or 2002.
Earnings and profits, which determine the taxability of distributions to
shareholders, may differ from that reported for financial reporting purposes due
primarily to differences in the basis of the assets and the estimated useful
lives used to compute depreciation.
CONCENTRATION OF RISK
American Multi-Cinema, Inc. (AMC) is the lessee of 61% of the megaplex theatre
rental properties owned by the Company (including joint venture properties) at
December 31, 2004. A substantial portion of the Company's rental revenues
(approximately $74.8 million or 60%, $66.1 million or 73%, and $51.6 million or
72% for the years ended December 31, 2004, 2003 and 2002, respectively,
including joint ventures) result from the rental payments by AMC under the
leases, or its parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC's
obligations under the leases. AMCE has publicly held debt and accordingly, their
financial information is publicly available.
CASH EQUIVALENTS
Cash equivalents include bank demand deposits and shares of highly liquid
institutional money market mutual funds for which cost approximates market
value.
RESTRICTED CASH
Restricted cash represents deposits required in connection with debt service,
payment of real estate taxes and capital improvements.
SHARE BASED COMPENSATION
Share Options
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.
Prior to 2003, the Company accounted for stock options issued under its share
incentive plan under the recognition and measurement provisions of APB Opinion
No. 25 "Accounting for Stock Issued to Employees," and related interpretations.
Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123 prospectively for all awards granted, modified, or
settled after January 1, 2003. Awards under the Company's plan vest either
immediately or up to a period of 5 years. Stock option expense for options
issued after January 1, 2003 is recognized on a straight-line basis over the
vesting period.
The cost related to stock based compensation related to stock options included
in the determination of net income for 2004 and 2003 is less than that which
would have been recognized if the fair value based method had been applied to
all awards since the original effective date of SFAS No. 123. The following
table illustrates the effect on net income and earnings per share if the fair
value based method had been applied to all outstanding and unvested awards for
each year (in thousands):
40
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
2004 2003 2002
------------ ---------- ------------
Net income available to common shareholders,
as reported $ 48,250 $ 32,131 $ 27,934
Add: Stock-based compensation expense
included in reported net income 116 25 --
Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards (241) (153) (172)
------------ ---------- ------------
Pro forma net income $ 48,125 $ 32,003 $ 27,762
============ ========== ============
Basic earnings per share:
As reported $ 2.12 $ 1.81 $ 1.66
Pro forma 2.12 1.80 1.65
Diluted earnings per share:
As reported $ 2.07 $ 1.77 $ 1.64
Pro forma 2.07 1.76 1.64
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.0% in 2004, 2003 and 2002, dividend yield of 6.0% in 2004 and
8.0% in 2003 and 2002, volatility factors of the expected market price of the
Company's common shares of 14.1% in 2004, 14.6% in 2003 and 22.3% to 25.1% in
2002; and an expected life of the options of eight years.
Restricted Shares
Restricted share awards, which vest over time, are recorded as unearned
compensation when granted using the fair value of the stock at the grant date,
and amortized on a straight-line basis to expense over the vesting period.
FOREIGN CURRENCY TRANSLATION
The Company accounts for the operations of its Canadian properties in Canadian
dollars. The assets and liabilities related to the Company's Canadian properties
are translated into U.S. dollars at current exchange rates; revenues and
expenses are translated at average exchange rates. Resulting translation
adjustments are recorded as a separate component of comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period amounts to conform
to the current period presentation.
3. RENTAL PROPERTIES
The following table summarizes the carrying amounts of rental properties as of
December 31, 2004 and 2003 (in thousands):
41
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
2004 2003
--------------- ----------
Buildings and improvements $ 941,235 741,519
Furniture, fixtures & equipment 2,000 4,000
Land 265,276 190,610
--------------- ----------
1,208,511 936,129
Accumulated depreciation (87,102) (65,185)
--------------- ----------
Total $ 1,121,409 870,944
=============== ==========
Depreciation expense on rental properties was $22.3 million, $16.2 million and
$12.7 million for the years ended December 31, 2004, 2003 and 2002,
respectively.
4. REAL ESTATE JOINT VENTURES
ATLANTIC-EPR I JOINT VENTURE
On May 11, 2000, the Company completed the formation of a joint venture
partnership, Atlantic-EPR I, a Delaware general partnership (Atlantic-EPR I),
with Atlantic of Hamburg, Germany (Atlantic), whereby the Company contributed
the AMC Cantera 30 theatre with a carrying value of $33.5 million in exchange
for cash proceeds from mortgage financing of $17.8 million and a 100% interest
in Atlantic-EPR I. During 2000 through 2002, the Company sold to Atlantic a
total of an 80% interest in Atlantic-EPR I in exchange for $14.3 million in
cash. The final contribution by Atlantic of $8.4 million was paid to
Atlantic-EPR I in December 2002 but was not paid to the Company until January
2003.
The joint venture agreement allows Atlantic to exchange up to a maximum of 10%
of its ownership interest in Atlantic-EPR I per year, beginning in 2005, for
common shares of the Company or, at the discretion of the Company, the cash
value of those shares as defined in the partnership agreement.
The Company accounts for its investment in Atlantic-EPR I under the equity
method of accounting. The Company recognized income of $410, $401 and $1,421 (in
thousands) from its investment in this joint venture and received distributions
of $512, $486 and $1,735 (in thousands) during 2004, 2003 and 2002,
respectively.
Condensed financial information for Atlantic-EPR I is as follows as of and for
the years ended December 31, 2004, 2003, and 2002 (in thousands):
2004 2003 2002
---------- -------- --------
Rental properties, net $ 30,533 31,177 31,821
Cash 141 141 9,342
Long-term debt 16,768 17,039 17,291
Payable to Entertainment Properties -- -- 8,438
Partners' equity 13,790 14,173 14,563
Rental revenue 4,077 4,006 3,932
Net income 1,949 1,911 1,845
42
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
ATLANTIC-EPR II JOINT VENTURE
On March 1, 2004, the Company completed the formation of a second joint venture
partnership, Atlantic-EPR II, a Delaware general partnership, with Atlantic,
whereby the Company contributed the AMC Tampa Veterans 24 theatre with a
carrying value of $24.2 million and related mortgage debt of $14.6 million for a
100% interest in Atlantic-EPR II. Simultaneously on March 1, 2004, the Company
sold to Atlantic an 80% interest in Atlantic-EPR II in exchange for $8.2 million
in cash.
The joint venture agreement allows Atlantic to exchange up to a maximum of 10%
of its ownership interest in Atlantic-EPR II per year, beginning in 2007, for
common shares of the Company or, at the discretion of the Company, the cash
value of those shares as defined in the partnership agreement.
The Company accounts for its investment in Atlantic-EPR II under the equity
method of accounting. The Company recognized income of $244 (in thousands) from
its investment in this joint venture and received distributions of $299 (in
thousands) during 2004.
Condensed financial information for Atlantic-EPR II is as follows as of and for
the year ended December 31, 2004 (in thousands):
2004
-------------
Rental properties, net $ 23,802
Cash 103
Long-term debt 14,405
Payable to Entertainment Properties --
Partners' equity 9,316
Rental revenue 2,377
Net income 1,052
43
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
5. OPERATING LEASES
The Company's rental properties are leased under operating leases with
expiration dates ranging from 3 to 25 years. Future minimum rentals on
non-cancelable tenant leases at December 31, 2004 are as follows (in thousands):
AMOUNT
-----------
Year:
2005 $ 132,046
2006 131,234
2007 131,485
2008 131,966
2009 131,207
Thereafter 1,014,851
-----------
Total $ 1,672,789
===========
The Company leases its executive office from a third party landlord through
December, 2009. Rental expense for this lease totaled approximately $195
thousand, $137 thousand and $114 thousand in 2004, 2003 and 2002, respectively,
and is included as a component of general and administrative expense in the
accompanying consolidated statements of income. Future minimum lease payments
under this lease at December 31, 2004 are (in thousands):
AMOUNT
------
Year:
2005 $ 198
2006 203
2007 209
2008 214
2009 220
------
Total $1,044
======
44
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
6. LONG-TERM DEBT
Long term debt at December 31, 2004 and 2003 consists of the following (in
thousands):
2004 2003
----------- ---------
(1)Secured variable rate credit facility, due
February 28, 2006 $ -- 20,000
(2)Secured revolving variable rate credit facility, due March 29, 2007 27,000 --
(3)Mortgage note payable, 8.18%, due February 1, 2005 18,850 19,166
(4)Mortgage notes payable, 6.50%-15.03%, due
February 10, 2006 113,074 116,524
(5)Mortgage note payable, 6.77%, due July 11, 2028 96,550 98,115
(6)Mortgage note payable, 7.37%, due July 15, 2018 15,660 16,270
(7)Mortgage notes payable, 4.26%-9.012%, due
February 10, 2013 147,257 151,856
(8)Mortgage note payable, 6.33%, due September 1, 2013 -- 14,624
(9)Variable rate mortgage note payable, due April 9, 2004 -- 66,000
(10) Mortgage note payable, 6.84%, due March 1, 2014 105,038 --
(11) Mortgage note payable, 5.58%, due April 1, 2004 65,463 --
Other 4,000 4,000
----------- ---------
Total $ 592,892 506,555
=========== =========
(1)The Company's secured variable rate credit facility ("iStar term loan") due
February 28, 2006 was secured by one theatre property, several retail and
restaurant properties and other land parcels. The note was paid in full and the
agreement terminated on April 1, 2004. Costs related to the termination of the
iStar term loan consisted of a prepayment penalty of $405 thousand and the
write-off of $729 thousand of remaining unamortized financing fees.
(2)The Company's secured revolving variable rate credit facility due March 29,
2007 is secured by nine theatre properties, two theatre and retail mix
properties and one retail mix property, which had a net book value of
approximately $180.0 million at December 31, 2004. There was $27.0 million
outstanding on the $150 million secured revolving variable rate credit facility
at December 31, 2004 and no outstanding balance at December 31, 2003. The note
requires monthly payments of interest with the outstanding principal due at
maturity. At December 31, 2004, the principal amounts were bearing interest at
Prime plus 75 basis points or LIBOR plus 225 basis points (6.00% or 4.64%,
respectively, at December 31, 2004).
(3)The Company's mortgage note payable due February 1, 2005 is secured by three
theatre properties, which had a net book value of approximately $37.9 million at
December 31, 2004. The note requires monthly principal and interest payments of
approximately $158 thousand with a final principal payment at maturity of
approximately $18.8 million (See Note 17).
(4)The Company's mortgage notes payable due February 10, 2006 are secured by
nine theatre properties, which had a net book value of approximately $179.8
million at December 31, 2004, and by $6.5 million in cash escrow deposits. The
escrow deposits are recorded as restricted cash in the accompanying consolidated
balance sheets at December 31, 2004 and 2003. The escrow deposits are required
by the terms of the mortgage notes and are available to pay debt service on the
mortgage notes if certain triggering
45
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
events occur, or they may be applied to the
principal amount at maturity. The note requires monthly principal and interest
payments of approximately $1.0 million with a final principal payment at
maturity of approximately $109.0 million.
(5)The Company's mortgage note payable due July 11, 2028 is secured by eight
theatre properties, which had a net book value of approximately $139.0 million
at December 31, 2004. The note requires monthly principal and interest payments
of approximately $689 thousand. This mortgage agreement contains a
"hyper-amortization" feature, in which the principal payment schedule is rapidly
accelerated, and our principal payments are substantially increased, if we fail
to pay the balance of approximately $89.9 million on the anticipated prepayment
date of July 11, 2008.
(6)The Company's mortgage note payable due June 15, 2018 is secured by one
theatre property, which had a net book value of approximately $21.8 million at
December 31, 2004. The notes require monthly principal and interest payments of
approximately $151 thousand with a final principal payment at maturity of
approximately $0.8 million.
(7)The Company's mortgage notes payable due February 10, 2013 are secured by
fourteen theatre properties, which had a net book value of approximately $235.4
million at December 31, 2004. The notes require monthly principal and interest
payments of approximately $1.1 million with a final principal payment at
maturity of approximately $99.2 million.
(8)The Company's mortgage note payable due September 1, 2013 was secured by one
theatre property, which had a net book value of approximately $24.3 million at
December 31, 2003. The note required monthly principal and interest payments of
approximately $98 thousand with a final principal payment at maturity of
approximately $11.5 million. The note was paid in full in 2004.
(9)The Company's variable rate mortgage note payable due April 9, 2004 was
secured by one theatre and retail mix property, which had a net book value of
approximately $100.5 million at December 31, 2003. The note required monthly
payments of interest with the outstanding principal due at maturity. Principal
amounts had a stated interest rate of LIBOR plus 250 basis points (3.625% at
December 31, 2003). The note was paid in full in 2004.
(10)The Company's mortgage note payable due March 1, 2014 is secured by four
theatre and retail mix properties in Ontario, Canada, which had a net book value
of approximately U.S. $166.3 million at December 31, 2004. The note requires
monthly principal and interest payments of approximately U.S. $813 thousand with
a final principal payment at maturity of approximately U.S. $72.1 million. The
mortgage note payable is denominated in Canadian dollars.
(11)The Company's mortgage note payable due April 1, 2014 is secured by one
theatre and retail mix property, which had a net book value of approximately
$98.2 million at December 31, 2004. The note requires monthly principal and
interest payments of approximately $378 thousand with a final principal payment
at maturity of approximately $55.3 million.
46
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
Certain of the Company's long-term debt agreements contain customary restrictive
covenants related to financial and operating performance. At December 31, 2004,
the Company was in compliance with all restrictive covenants.
Principal payments due on long term debt obligations subsequent to December 31,
2004 are as follows (in thousands):
AMOUNT
---------
Year:
2005 $ 33,395
2006 120,867
2007 39,243
2008 102,030
2009 11,622
Thereafter 285,735
---------
Total $ 592,892
=========
The Company capitalizes a portion of interest costs as a component of property
under development. The following is a summary of interest costs incurred during
2004, 2003 and 2002 (in thousands):
2004 2003 2002
--------- ------ ------
Interest cost charged to income $ 38,054 30,570 24,475
Interest cost capitalized 688 832 961
--------- ------ ------
Total interest costs incurred $ 38,742 31,402 25,436
========= ====== ======
7. SHARE INCENTIVE PLAN
The Company maintains a Share Incentive Plan (the Plan) under which common
shares and options to purchase up to 3,000,000 of the Company's common shares,
subject to adjustment in the event of certain capital events, may be granted. At
December 31, 2004, there were 1,627,965 shares available for grant under the
Plan.
SHARE OPTIONS
Share options granted under the Plan have exercise prices equal to the fair
market value of a common share at the date of grant. The options may be granted
for any reasonable term, not to exceed 10 years, and typically become
exercisable at a rate of 20% per year over a five-year period. For trustees,
share options become exercisable at a rate of one-third per year over a
three-year period. A summary of the Company's share option activity and related
information is as follows:
47
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
--------- ----------------- ---------
Outstanding at
December 31, 2001 584,396 $ 14.00 - $ 20.00 $ 15.93
Exercised 6,400 16.30 - 19.50 18.50
Granted 164,791 19.30 - 22.90 22.64
Canceled/Expired 9,000 16.30 - 19.30 18.10
---------
Outstanding at
December 31, 2002 733,787 14.00 - 20.00 17.25
Exercised 66,863 14.00 - 22.89 18.50
Granted 341,019 23.26 - 27.43 24.98
---------
Outstanding at
December 31, 2003 1,007,943 14.00 - 27.43 19.67
Exercised 178,353 14.13 - 26.87 16.22
Granted 151,087 32.50 - 39.80 36.41
---------
Outstanding at
December 31, 2004 980,677 $ 14.00 - $ 39.80 $ 22.99
=========
The weighted average fair value of options granted was $1.18, $.41 and $.58
during 2004, 2003 and 2002, respectively.
The following table summarizes outstanding and exercisable options at December
31, 2004:
Exercise Options Options Weighted avg.
price range outstanding exercisable life remaining
- ---------------- ----------- ----------- --------------
$ 14.00 - 19.99 345,102 279,496 5.6
20.00 - 29.99 484,488 142,455 7.8
30.00 - 39.80 151,087 - 9.2
----------- ----------- --------
980,677 421,951 7.3
=========== =========== ========
RESTRICTED SHARES
During 2004, 2003 and 2002, the Company issued 55,651, 54,480 and 60,130,
respectively, restric ted common shares as bonus compensation and long-term
incentive to executives and other employees of the Company. During 2004, the
Company also issued 717 restricted common shares as retainers to trustees of the
Company. Based upon the market price of the Company's common shares on the grant
dates, approximately $2.1 million, $1.3 million and $1.2 million were recognized
as non-vested shares issued in 2004, 2003 and 2002 respectively.
The holders of these restricted shares have voting rights and are eligible to
receive dividends from the date of grant. These shares vest ratably over a
period of one to five years. The Company records compensation expense pertaining
to these restricted shares on a straight-line basis over the period of vesting.
Total
48
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
expenses related to the restricted shares recorded during 2004, 2003 and 2002
amounted to $1.38 million, $926 thousand and $1.05 million, respectively. At
December 31, 2004, there were 131,001 non-vested restricted shares issued and
outstanding.
8. RELATED PARTY TRANSACTIONS
In 2000, the Company loaned an aggregate of $3.5 million to Company executives.
The loans were made in order for the executives to purchase common shares of the
Company at the market value of the shares on the date of the loan, as well as to
repay borrowings on certain amounts previously loaned. The loans are recourse to
the executives' assets and bear interest at 6.24%, are due on January 1, 2011
and interest is payable at maturity. Interest income from these loans totaled
$307 thousand, $289 thousand and $238 thousand for the years ended December 31,
2004, 2003 and 2002, respectively. These loans were issued with terms that
include a Loan Forgiveness Program, under which the compensation committee of
the Board of Trustees may forgive a portion of the above referenced indebtedness
after application of proceeds from the sale of shares, following a change in
control of the Company. The compensation committee may also forgive the debt
incurred upon termination of employment by reason of death, disability, normal
retirement or without cause. At December 31, 2004 and 2003, accrued interest
receivable on these loans, included in other assets in the accompanying
consolidated balance sheets, was $1.67 million and $1.37 million, respectively.
As further described in Note 11, the Company loaned $5 million to a minority
joint venture partner in 2003 in connection with an acquisition. That note is
included in other assets, bears interest at 10% per year, matures on March 9,
2009, and is secured by the minority partner's interest in the partnership. In
February 2004, the Company loaned an additional $5 million to the same minority
partner with interest also at 10% per year. This note was paid in full,
including all accrued interest, on October 14, 2004. Interest income from these
loans totaled $954 thousand, $163 thousand and $0 for the years ended December
31, 2004, 2003 and 2002, respectively.
49
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
9. EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings
per common share for the years ended December 31, 2004, 2003 and 2002 (amounts
in thousands except per share information):
2004 2003 2002
------------ ----------- ---------
Net income available to common
shareholders $ 48,250 32,131 27,934
Weighted-average shares outstanding 22,721 17,780 16,791
Basic net income per common share $ 2.12 1.81 1.66
Numerator for diluted earnings per
common share:
Net income available to common
shareholders $ 48,250 32,131 27,934
Minority interests 750 1,500 1,195
Numerator for diluted earnings per ------------ ----------- ---------
common share $ 49,000 33,631 29,129
============ =========== =========
Weighted-average shares outstanding 22,721 17,780 16,791
Effect of dilutive securities:
Employee options to acquire common
shares 383 322 168
Minority interest convertible into
common shares 429 857 685
Non-vested common share grants 131 92 118
------------ ----------- ---------
Dilutive potential common shares 943 1,271 971
------------ ----------- ---------
Denominator for diluted earnings per
share 23,664 19,051 17,762
============ =========== =========
Diluted net income per common share $ 2.07 1.77 1.64
10. DERIVATIVE FINANCIAL INSTRUMENTS
In 1998, the Company entered into a forward contract in connection with a
mortgage note payable due July 2028 to essentially fix the base rate of interest
on a notional amount of $105 million. Because of a hyper-amortization feature on
this note, as further described in Note 6, it is anticipated that this note will
be paid in full prior to maturity in July, 2008, the optional prepayment date.
The forward contract settled on June 29, 1998, the closing date of the long-term
debt issuance, and the Company incurred a loss of $1.4 million, which is being
amortized as an increase to interest expense over the anticipated ten year term
of the long-term debt resulting in an effective interest rate of 6.84%. The
remaining unamortized amount of $605 thousand and $776 thousand is included in
other assets in the accompanying 2004 and 2003 consolidated balance sheets,
respectively.
50
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
11. COMPLETED PROPERTY ACQUISITIONS
The Company acquired a 71.4% ownership interest in New Roc Associates, LP ("New
Roc") on October 27, 2003 in exchange for cash of $25 million. New Roc owns an
entertainment retail center encompassing 446 thousand square feet located in New
Rochelle, New York. The results of New Roc's operations have been included in
the consolidated financial statements since the date of acquisition.
The fair value of New Roc's real property was approximately $105 million and New
Roc had mortgage debt of $70 million at the date of acquisition. Other assets
and liabilities of New Roc were insignificant. The net assets of New Roc were
recorded in the accompanying consolidated financial statements at their fair
values to the extent of the Company's ownership interest in New Roc, and at
carryover basis (predecessor cost) to the extent of the minority ownership
interest retained by the former owner of New Roc. Rental property of $103.7
million and minority interest of $7 million were recorded by the Company in its
consolidated financial statements at the date of acquisition.
In connection with the acquisition, the Company loaned $5 million to the
minority partner in New Roc. That note is included in other assets, bears
interest at 10% per year, matures on March 9, 2009, and is secured by the
minority partner's interest in the partnership.
On March 1, 2004, the Company acquired, through a wholly-owned subsidiary, four
separate entertainment retail centers anchored by AMC megaplex theatres located
in Ontario, Canada for total consideration of US $152 million. Approximately US
$27 million of the purchase price consisted of 747,243 restricted common shares
of the Company valued at US $36.25 per share determined based on a the
approximate average market price of the Company's common shares over the 2-day
period before and after the terms of the acquisition were agreed upon. The cash
portion of the purchase price was paid in Canadian dollars and financed in part
through Canadian-dollar non-recourse fixed-rate mortgage loans of approximately
US $97 million. The properties are the Mississauga Entertainment Centrum located
in suburban Toronto, the Oakville Entertainment Centrum located in suburban
Toronto, the Whitby Entertainment Centrum located in suburban Toronto, and the
Kanata Centrum Walk located in suburban Ottawa.
In accordance with Statement of Financial Accounting Standard (SFAS) No. 141
(described in Note 2), the Company allocated approximately $10 million of the
purchase price to in-place leases and is amortizing this value over the
remaining non-cancelable lease terms ranging from 5 to 19 years. The remaining
amount of the purchase price of approximately $142 million was allocated $37
million to land and $105 million to buildings.
The following unaudited pro forma results of operations reflects the Company's
acquisitions of New Roc and the Canadian properties as if they had occurred as
of the beginning of 2003:
51
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
PRO FORMA YEAR ENDED
DECEMBER 31,
----------------------
2004 2003
----------- -------
Total revenue $ 127,575 113,954
Net income available to common shareholders $ 48,808 38,167
Basic net income per common share $ 2.14 2.06
Diluted net income per common share $ 2.08 2.03
For the year ended December 31, 2004, approximately $15 million, or 12% of total
revenue was derived from the Company's four entertainment retail centers in
Ontario, Canada.
During 2004 and 2003, the Company acquired various other rental and development
properties. Those acquisitions were recorded at the Company's cost of
acquisition. Rental properties acquired generally consisted of properties
subject to triple-net leases.
12. SHARE OFFERINGS
On April 26, 2004, the Company issued 2.6 million common shares in a registered
public offering for net proceeds of $82.0 million. A portion of the proceeds
were used to repay borrowings under the iStar term loan and to repay a portion
of the Company's borrowings under the secured revolving variable rate credit
facility described in Note 6.
On June 28, 2004, the Company issued 1.0 million common shares in a registered
public offering for net proceeds of $35.4 million. A portion of the proceeds
were used to fund the acquisition of rental properties and property under
development and to repay a portion of the Company's borrowings under the secured
revolving variable rate credit facility described in Note 6.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management compares the carrying value and the estimated fair value of our
financial instruments. The following methods and assumptions were used by the
Company to estimate the fair value of each class of financial instruments at
December 31, 2004 and 2003:
CASH AND CASH EQUIVALENTS, RESTRICTED CASH:
Due to the highly liquid nature of our short term investments, the
carrying values of our cash and cash equivalents and restricted cash
approximate the fair market values.
ACCOUNTS RECEIVABLE:
The carrying value of our accounts receivable approximates the fair market
value due to the short term maturities of these amounts.
DEBT INSTRUMENTS:
The fair value of the Company's debt as of December 31, 2004 and 2003 is
estimated by discounting the future cash flows of each instrument using
current market rates. At December 31, 2004, the Company had a carrying
value of $27 million in variable rate debt outstanding, which management
believes represents fair value. At December 31, 2004, the Company had a
carrying value of $565.9 million in fixed rate long-term debt outstanding
with an average weighted interest rate of approximately 6.5%.
52
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
Discounting the future cash flows for fixed rate debt using an estimated
market rate of 6%, management estimates the fixed rate debt's fair value
to be approximately $570.2 million at December 31, 2004.
At December 31, 2003, the Company had a carrying value of $420.6 million
in fixed rate long-term debt outstanding with an average weighted interest
rate of approximately 6.6%. Discounting the future cash flows for fixed
rate debt using an estimated market rate of 6%, management estimates the
fixed rate debt's fair value to be approximately $425.3 million at
December 31, 2003.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
The carrying value of accounts payable and accrued liabilities
approximates fair value due to the short term maturities of these amounts.
COMMON AND PREFERRED DIVIDENDS PAYABLE:
The carrying values of common and preferred dividends payable approximate
fair value due to the short term maturities of these amounts.
14. QUARTERLY FINANCIAL INFORMATION (unaudited)
Summarized quarterly financial data for the years ended December 31, 2004 and
2003 are as follows (in thousands, except per share data):
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ------- ------------ -----------
2004:
Total revenue $ 27,611 31,449 32,605 33,314
Net income 11,330 11,716 15,354 15,314
Net income available to
common shareholders 9,964 10,350 13,988 13,948
Basic net income per
common share 0.50 0.47 0.58 0.56
Diluted net income per
common share 0.49 0.46 0.57 0.55
Cash flows from:
Operating activities 29,451 14,808 14,282 25,875
Investing activities* (191,829) (10,018) (34,823) (15,120)
Financing activities* 163,635 (6,123) 6,394 (15,906)
* Includes reclassification to a non-cash activity of $27.1 million related
to common shares issued in connection with the purchase of properties in
Ontario, Canada.
53
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ------- ------------ -----------
2003:
Total revenue $ 21,045 21,944 23,014 25,157
Net income 8,658 8,867 9,631 10,437
Net income available to
common shareholders 7,292 7,501 8,265 9,072
Basic net income per
common share 0.43 0.44 0.48 0.46
Diluted net income per
common share 0.42 0.43 0.46 0.46
Cash flows from:
Operating activities 10,011 23,570 13,860 3,561
Investing activities (3,037) (72,636) (2,233) (65,833)
Financing activities 65,702 (11,719) 73,705 (14,515)
15. DIVIDENDS
COMMON SHARES
The Board of Trustees declared cash dividends totaling $2.25 per common share
for the year ended December 31, 2004 and $2.00 per common share for the year
ended December 31, 2003.
Of the total dividends calculated for tax purposes, the amounts characterized as
ordinary income, return of capital and capital gain for 2004 and 2003 are as
follows:
Cash dividends paid per common share for the year ended December 31, 2004:
CASH TAXABLE
CASH PAYMENT DISTRIBUTION ORDINARY RETURN OF LONG-TERM
RECORD DATE DATE PER SHARE DIVIDEND CAPITAL CAPITAL GAIN
- -------------- ------------ ------------ -------- --------- ------------
12-31-03 01-15-04 $ 0.5000 0.3896 0.1104 -
03-31-04 04-15-04 0.5625 0.4382 0.1243 -
06-30-04 07-15-04 0.5625 0.4382 0.1243 -
09-30-04 10-15-04 0.5625 0.4382 0.1243 -
------------ -------- --------- ------------
Total for 2004 $ 2.1875 1.7042 0.4833 -
============ ======== ========= ============
$ 100.0% 77.9% 22.1% -
54
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
Cash dividends paid per Series A preferred share for the year ended December 31,
2003:
CASH TAXABLE
CASH PAYMENT DISTRIBUTION ORDINARY RETURN OF LONG-TERM
RECORD DATE DATE PER SHARE DIVIDEND CAPITAL CAPITAL GAIN
- ------------------- ------------ ------------ -------- --------- ------------
12-31-02 01-15-03 $ 0.4750 0.3286 0.1464 --
03-28-03 04-15-03 0.5000 0.3459 0.1541 --
06-30-03 07-15-03 0.5000 0.3459 0.1541 --
09-30-03 10-15-03 0.5000 0.3459 0.1541 --
------------ -------- --------- ------------
Total for 2003 $ 1.9750 1.3663 0.6087 --
============ ======== ========= ============
$ 100.0% 69.2% 30.8% --
PREFERRED SHARES
On May 29, 2002, the Company issued 2.3 million 9.50% Series A cumulative
redeemable preferred shares ("Series A preferred shares") in a registered public
offering. The Company may not redeem the Series A preferred shares, which have a
$25 liquidation preference per share, before May 29, 2007, except in limited
circumstances to preserve the Company's REIT status. On or after May 29, 2007,
the Company may, at its option, redeem the Series A preferred shares in whole at
any time or in part from time to time, by paying $25 per share, plus any accrued
and unpaid dividends up to and including the date of redemption. The Series A
preferred shares generally have no stated maturity, are not subject to any
sinking fund or mandatory redemption, and are not convertible into any of the
Company's other securities. The Board of Trustees declared cash dividends
totaling $2.375 per Series A preferred share for the years ended December 31,
2004 and December 31, 2003, respectively.
Of the total dividends calculated for tax purposes, the amounts characterized as
ordinary income, return of capital and capital gain for 2004 and 2003 are as
follows:
Cash dividends paid per Series A preferred share for the year ended December 31,
2004:
CASH TAXABLE
CASH PAYMENT DISTRIBUTION ORDINARY RETURN OF LONG-TERM
RECORD DATE DATE PER SHARE DIVIDEND CAPITAL CAPITAL GAIN
- ------------------- ------------ ------------ -------- --------- ------------
12-31-03 01-15-04 $ 0.59375 0.59375 -- --
03-31-04 04-15-04 0.59375 0.59375 -- --
06-30-04 07-15-04 0.59375 0.59375 -- --
09-30-04 10-15-04 0.59375 0.59375 -- --
------------ -------- --------- ------------
Total for 2004 $ 2.3750 2.3750 -- --
============ ======== ========= ============
$ 100.0% 100.0% -- --
55
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
Cash dividends paid per Series A preferred share for the year ended December 31,
2003:
CASH TAXABLE
CASH PAYMENT DISTRIBUTION ORDINARY RETURN OF LONG-TERM
RECORD DATE DATE PER SHARE DIVIDEND CAPITAL CAPITAL GAIN
- ------------------- ------------ ------------ -------- --------- ------------
12-31-03 01-15-03 $ 0.59375 0.59375 -- --
03-28-03 04-15-03 0.59375 0.59375 -- --
06-30-03 07-15-03 0.59375 0.59375 -- --
09-30-03 10-15-03 0.59375 0.59375 -- --
------------ -------- --------- ------------
Total for 2003 $ 2.3750 2.3750 -- --
============ ======== ========= ============
$ 100.0% 100.0% -- --
16. CONVERSION OF PREFERRED INTEREST IN EPT GULF STATES, LLC
On September 20, 2004, 100% of the preferred interest in EPT Gulf States, LLC
(Gulf States), a subsidiary formed in 2002 for the purpose of acquiring five
theatre properties, was converted to 857,145 restricted common shares of the
Company. As a result, $15 million of minority interest in Gulf States was
converted to common shares and additional paid-in-capital. Minority interest
expense related to the preferred interest in Gulf States was $.8 million, $1.5
million and $1.2 million for the years ended December 31, 2004, 2003 and 2002,
respectively.
17. SUBSEQUENT DEVELOPMENTS
Subsequent to December 31, 2004, the Company filed an amendment to its
Declaration of Trust. Effective January 11, 2005, the number of authorized
preferred shares of beneficial interest, par value $.01 per share, which the
Company has the authority to issue, was increased from 5 million shares to 10
million shares.
On January 19, 2005, the Company issued 3.2 million 7.75% Series B cumulative
redeemable preferred shares ("Series B preferred shares") in a registered public
offering for net proceeds of $77.5 million, before expenses. The Company will
pay cumulative dividends on the Series B preferred shares from (and including)
the date of original issuance in the amount of $1.9375 per share each year,
which is equivalent to 7.75% of the $25 liquidation preference per share.
Dividends on the Series B preferred shares will be payable quarterly in arrears,
beginning on April 15, 2005. The Company may not redeem the Series B preferred
shares before January 19, 2010, except in limited circumstances to preserve the
Company's REIT status. On or after January 19, 2010, the Company may, at its
option, redeem the Series B preferred shares in whole at any time or in part
from time to time, by paying $25 per share, plus any accrued and unpaid
dividends up to and including the date of redemption. The Series B preferred
shares generally have no stated maturity, will not be subject to any sinking
fund or mandatory redemption, and are not convertible into any of the Company's
other securities. Owners of the Series B preferred shares generally have no
voting rights, except under certain dividend defaults. A portion of the proceeds
from this offering was used to repay $18.8 million in mortgage notes payable on
their due date of February 1, 2005.
56
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2004, 2003, and 2002
18. COMMITMENTS AND CONTINGENCIES
As of December 31, 2004, the Company had four theatre development projects under
construction for which it has agreed to either finance the development costs or
purchase the theatre upon completion. The properties are being developed by the
prospective tenants. These theatres are expected to have a total of 60 screens
and their development costs (including land) are expected to be approximately
$38.8 million. Through December 31, 2004, the Company has invested $11.7 million
in these projects (including land), and has commitments to fund approximately
$27.1 million of additional improvements. Development costs are advanced by the
Company either in periodic draws or upon successful completion of construction.
If the Company determines that construction is not being completed in accordance
with the terms of the development agreement, the Company can discontinue funding
construction draws or refuse to purchase the completed theatre. The Company has
agreed to lease the theatres to the operators at pre-determined rates.
57
ENTERTAINMENT PROPERTIES TRUST
Schedule II - Valuation and Qualifying Accounts
December 31, 2004
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
DESCRIPTION DECEMBER 31, 2003 DURING 2004 DURING 2004 DECEMBER 31, 2004
- ------------------ ----------------- ----------- ----------- -----------------
Reserve for
Doubtful Accounts 60,000 33,000 -- 93,000
See accompanying independent auditor's report.
ENTERTAINMENT PROPERTIES TRUST
Schedule II - Valuation and Qualifying Accounts
December 31, 2003
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
DESCRIPTION DECEMBER 31, 2002 DURING 2003 DURING 2003 DECEMBER 31, 2003
- ------------------ ----------------- ----------- ----------- -----------------
Reserve for
Doubtful Accounts -- 60,000 -- 60,000
See accompanying independent auditor's report.
58
ENTERTAINMENT PROPERTIES TRUST
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2004
INITIAL COST
---------------------
BUILDINGS, ADDITIONS (SALES)
EQUIPMENT & SUBSEQUENT TO
DESCRIPTION MARKET ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION
- ---------------------- -------------------- ----------- ------- ------------ -----------------
Grand 24 Dallas, TX $ 11,035 3,060 15,281 -
Mission Valley 20 San Diego, CA 9,644 - 16,028 -
Promenade 16 Los Angeles, CA 16,923 6,021 22,104 -
Ontario Mills 30 Los Angeles, CA 15,024 5,521 19,450 -
Lennox 24 Columbus, OH 7,632 - 12,685 -
West Olive 16 St. Louis, MO 10,581 4,985 12,602 -
Studio 30 Houston, TX 15,680 6,023 20,037 -
Huebner Oaks 24 San Antonio, TX 10,029 3,006 13,662 -
First Colony 24 Houston, TX 10,349 - 19,100 67
Oakview 24 Omaha, NE 12,725 5,215 16,700 59
Leawood 20 Kansas City, MO 8,554 3,714 12,086 43
Gulf Pointe 30 Houston, TX 13,972 4,304 21,496 76
South Barrington 30 Chicago, IL 18,573 6,577 27,723 98
Mesquite 30 Dallas, TX 12,566 2,912 20,288 72
Hampton Town Center 24 Norfolk, VA 15,437 3,822 24,678 88
Pompano 18 Pompano Beach, FL 7,475 6,376 9,899 2,426
Raleigh Grand 16 Raleigh, NC 3,901 2,919 5,559 -
Paradise 24 Miami, FL 12,695 2,000 13,000 8,512
Pompano Kmart Pompano Beach, FL - 600 2,430 -
Pompano Restaurant Pompano Beach, FL - 200 803 430
Aliso Viejo 20 Los Angeles, CA 11,879 8,000 14,000 -
Bosie Stadium 20 Boise, ID 7,475 - 16,003 -
Woodridge 18 Chicago, IL 8,418 9,926 8,968 -
Cary Crossroads 20 Cary, NC 9,011 3,352 11,653 155
Tampa Palms 20 Tampa, FL 10,671 6,000 12,809 -
Palms Promenade San Diego, CA 14,168 7,500 17,750 -
On The Border Dallas, TX - 879 - -
Bennigans Dallas, TX - 565 - 1,000
Bennigans Houston, TX - 652 - 750
Texas Land & Cattle Dallas, TX - 1,519 - -
Texas Roadhouse Grill Atlanta, GA - 886 - -
Roadhouse Grill Atlanta, GA - 868 - -
Westminster 24 Denver, CO 15,659 5,850 17,314 -
Westminster Center Denver, CO 3,141 6,204 12,600 2,184
Subway Denver, CO - - 27 -
Westbank Palace 10 Westbank, LA 9,485 4,378 12,330 -
Houma Palace 10 Houma, LA 5,335 2,404 6,780 -
Hammond Palace 10 Hammond, LA 5,187 2,404 6,780 -
Elmwood Palace 10 Elmwood, LA 13,635 5,264 14,820 -
Clearview Palace 12 Clearview, LA 7,115 - 11,740 -
Sterling Forum 30 Sterling Heights, MI 16,599 5,975 17,956 3,400
Olathe Studio 30 Olathe, KS 11,856 4,000 15,935 -
Cherrydale 16 Greenville, SC 4,891 1,660 7,570 -
Livonia Livonia, MI 13,576 4,500 17,525 -
Hoffman 22 Alexandria, VA 13,635 - 22,035 -
Little Rock Rave Little Rock, AR 1,773 3,858 7,990 -
----------- ------- ------- ------
Subtotals carried over to page 60 $ 396,304 153,899 558,196 19,360
=========== ======= ======= ======
GROSS AMOUNT AT DECEMBER 31, 2004
---------------------------------
BUILDINGS,
EQUIPMENT & ACCUMULATED DATE DEPRECIATION
DESCRIPTION MARKET LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE
- ---------------------- -------------------- ------- ------------ ------- ------------ -------- ------------
Grand 24 Dallas, TX 3,060 15,281 18,341 2,483 11/97 40 years
Mission Valley 20 San Diego, CA - 16,028 16,028 2,605 11/97 40 years
Promenade 16 Los Angeles, CA 6,021 22,104 28,125 3,592 11/97 40 years
Ontario Mills 30 Los Angeles, CA 5,521 19,450 24,971 3,161 11/97 40 years
Lennox 24 Columbus, OH - 12,685 12,685 2,061 11/97 40 years
West Olive 16 St. Louis, MO 4,985 12,602 17,587 2,048 11/97 40 years
Studio 30 Houston, TX 6,023 20,037 26,060 3,256 11/97 40 years
Huebner Oaks 24 San Antonio, TX 3,006 13,662 16,668 2,220 11/97 40 years
First Colony 24 Houston, TX - 19,167 19,167 3,388 11/97 40 years
Oakview 24 Omaha, NE 5,215 16,759 21,974 2,963 11/97 40 years
Leawood 20 Kansas City, MO 3,714 12,129 15,843 2,144 11/97 40 years
Gulf Pointe 30 Houston, TX 4,304 21,572 25,876 3,724 2/98 40 years
South Barrington 30 Chicago, IL 6,577 27,821 34,398 4,745 3/98 40 years
Mesquite 30 Dallas, TX 2,912 20,360 23,272 3,388 4/98 40 years
Hampton Town Center 24 Norfolk, VA 3,822 24,766 28,588 4,011 6/98 40 years
Pompano 18 Pompano Beach, FL 6,376 12,325 18,701 1,960 8/98 40 years
Raleigh Grand 16 Raleigh, NC 2,919 5,559 8,478 923 8/98 40 years
Paradise 24 Miami, FL 2,000 21,512 23,512 3,129 11/98 40 years
Pompano Kmart Pompano Beach, FL 600 2,430 3,030 364 11/98 40 years
Pompano Restaurant Pompano Beach, FL 200 1,233 1,433 181 11/98 40 years
Aliso Viejo 20 Los Angeles, CA 8,000 14,000 22,000 2,100 12/98 40 years
Bosie Stadium 20 Boise, ID - 16,003 16,003 2,400 12/98 40 years
Woodridge 18 Chicago, IL 9,926 8,968 18,894 1,228 6/99 40 years
Cary Crossroads 20 Cary, NC 3,352 11,808 15,160 1,457 6/99 40 years
Tampa Palms 20 Tampa, FL 6,000 12,809 18,809 1,628 6/99 40 years
Palms Promenade San Diego, CA 7,500 17,750 25,250 2,182 6/99 40 years
On The Border Dallas, TX 879 - 879 - 11/97 n/a
Bennigans Dallas, TX 565 1,000 1,565 230 11/97 20 years
Bennigans Houston, TX 652 750 1,402 172 11/97 20 years
Texas Land & Cattle Dallas, TX 1,519 - 1,519 - 11/97 n/a
Texas Roadhouse Grill Atlanta, GA 886 - 886 - 3/99 n/a
Roadhouse Grill Atlanta, GA 868 - 868 - 3/99 n/a
Westminster 24 Denver, CO 5,850 17,314 23,164 1,335 12/01 40 years
Westminster Center Denver, CO 6,204 14,784 20,988 1,033 12/01 40 years
Subway Denver, CO - 27 27 15 4/2 5 years
Westbank Palace 10 Westbank, LA 4,378 12,330 16,708 860 3/2 40 years
Houma Palace 10 Houma, LA 2,404 6,780 9,184 473 3/2 40 years
Hammond Palace 10 Hammond, LA 2,404 6,780 9,184 473 3/2 40 years
Elmwood Palace 10 Elmwood, LA 5,264 14,820 20,084 1,034 3/2 40 years
Clearview Palace 12 Clearview, LA - 11,740 11,740 819 3/2 40 years
Sterling Forum 30 Sterling Heights, MI 5,975 21,356 27,331 1,510 6/2 40 years
Olathe Studio 30 Olathe, KS 4,000 15,935 19,935 996 6/2 40 years
Cherrydale 16 Greenville, SC 1,660 7,570 9,230 473 6/2 40 years
Livonia Livonia, MI 4,500 17,525 22,025 1,059 8/2 40 years
Hoffman 22 Alexandria, VA - 22,035 22,035 1,239 10/2 40 years
Little Rock Rave Little Rock, AR 3,858 7,990 11,848 408 12/2 40 years
------- ------- ------- ------
Subtotals carried over to page 60 153,899 577,556 731,455 75,470
======= ======= ======= ======
59
ENTERTAINMENT PROPERTIES TRUST
Continued Schedule III - Real Estate and Accumulated Depreciation
December 31, 2004
INITIAL COST
---------------------
BUILDINGS, ADDITIONS (SALES)
EQUIPMENT & SUBSEQUENT TO
DESCRIPTION MARKET ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION
- ------------------------- ----------------- ----------- ------- ------------ -----------------
Subtotal from page 59 n/a $ 396,304 153,899 558,196 19,360
AmStar Cinema 16 Macon, GA 1,053 1,982 5,056 -
Star Southfield Center Southfield, MI 4,044 8,000 20,518 24
Southwind 12 Lawrence, KS 752 1,500 3,526 -
New Roc City New Rochelle, NY 69,463 6,100 97,601 90
Harbour View Station Suffolk, VA 1,613 3,256 9,206 -
Columbiana Grande 14 Columbiana, SC 1,352 1,000 10,534 (2,000)
The Grande 18 Hialeah, FL - 7,985 - -
Johnny Carino's Mesquite, TX - 789 990 -
Rocky Mountain Choc. Westminster, CO - - 16 -
Kanata Centrum Toronto, Ontario 37,450 10,483 38,233 7,175
Oakville Centrum Toronto, Ontario 23,981 10,483 24,701 356
Mississauga Centrum Toronto, Ontario 18,913 9,651 18,377 -
Whitby Centrum Toronto, Ontario 24,695 10,648 22,940 5,267
Deer Valley 30 Phoenix, AZ 3,145 4,276 15,934 -
Mesa Grand 24 Phoenix, AZ 3,025 4,446 16,565 -
Hamilton 24 Hamilton, NJ 3,444 4,869 18,142 -
Grand Prairie 18 Peoria, IL 2,114 2,948 11,177 -
Lafayette Grand 16 Lafayette, LA 1,544 1,935 8,383 -
Northeast Mall 18 Hurst, TX - 5,000 11,729 -
The Grand D'Iberville 14 Biloxi, MS - 2,001 8,043 -
Melbourne 16 Melbourne, FL - 3,817 8,830 -
Putting Edge Westminster, CO - - 482 -
Stir Crazy Chicago, IL - 1,983 900 -
Vland Multi-tenant Retail Chicago, IL - 1,936 - -
Maximum Gamers Westminster, CO - - 34 -
Chatanooga Land Chatanooga, TN - 2,798 - -
Wilmington Land Wilmington, NC - 1,650 - -
Conroe Land Conroe, TX - 1,841 - -
Splitz Westminster, CO - - 2,213 -
Leasing Commissions Various - - 636 -
Development Property Various - 23,144 - -
----------- ------- ------- ------
Total $ 592,892 288,420 912,962 30,272
=========== ======= ======= ======
GROSS AMOUNT AT DECEMBER 31, 2004
---------------------------------
BUILDINGS,
EQUIPMENT & ACCUMULATED DATE DEPRECIATION
DESCRIPTION MARKET LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE
- ------------------------- ----------------- ------- ------------ --------- ------------ -------- ------------
Subtotal from page 59 n/a 153,899 577,556 731,455 75,470 n/a n/a
AmStar Cinema 16 Macon, GA 1,982 5,056 7,038 219 3/3 40 years
Star Southfield Center Southfield, MI 8,000 20,542 28,542 1,092 5/3 40 years
Southwind 12 Lawrence, KS 1,500 3,526 5,026 140 6/3 40 years
New Roc City New Rochelle, NY 6,100 97,691 103,791 5,659 10/3 40 years
Harbour View Station Suffolk, VA 3,256 9,206 12,462 259 11/3 40 years
Columbiana Grande 14 Columbiana, SC 1,000 8,534 9,534 697 11/3 40 years
The Grande 18 Hialeah, FL 7,985 - 7,985 - 12/3 40 years
Johnny Carino's Mesquite, TX 789 990 1,779 45 3/3 40 years
Rocky Mountain Choc. Westminster, CO - 16 16 2 11/3 10 years
Kanata Centrum Toronto, Ontario 10,483 45,408 55,891 829 3/4 40 years
Oakville Centrum Toronto, Ontario 10,483 25,057 35,540 517 3/4 40 years
Mississauga Centrum Toronto, Ontario 9,651 18,377 28,028 383 3/4 40 years
Whitby Centrum Toronto, Ontario 10,648 28,207 38,855 540 3/4 40 years
Deer Valley 30 Phoenix, AZ 4,276 15,934 20,210 295 3/4 40 years
Mesa Grand 24 Phoenix, AZ 4,446 16,565 21,011 313 3/4 40 years
Hamilton 24 Hamilton, NJ 4,869 18,142 23,011 342 3/4 40 years
Grand Prairie 18 Peoria, IL 2,948 11,177 14,125 116 7/4 40 years
Lafayette Grand 16 Lafayette, LA 1,935 8,383 10,318 87 7/4 40 years
Northeast Mall 18 Hurst, TX 5,000 11,729 16,729 37 11/4 40 years
The Grand D'Iberville 14 Biloxi, MS 2,001 8,043 10,044 8 12/4 40 years
Melbourne 16 Melbourne, FL 3,817 8,830 12,647 9 12/4 40 years
Putting Edge Westminster, CO - 482 482 8 7/4 10 years
Stir Crazy Chicago, IL 1,983 900 2,883 15 10/4 15 years
Vland Multi-tenant Retail Chicago, IL 1,936 - 1,936 - 7/4 n/a
Maximum Gamers Westminster, CO - 34 34 - 11/4 5 years
Chatanooga Land Chatanooga, TN 2,798 - 2,798 - 12/3 n/a
Wilmington Land Wilmington, NC 1,650 - 1,650 - 6/4 n/a
Conroe Land Conroe, TX 1,841 - 1,841 - 7/4 n/a
Splitz Westminster, CO - 2,213 2,213 - 12/4 40 years
Leasing Commissions Various - 637 637 20 various various
Development Property Various 23,144 - 23,144 - various n/a
------- ------- --------- ------
Total 288,420 943,235 1,231,655 87,102
======= ======= ========= ======
60
ENTERTAINMENT PROPERTIES TRUST
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2003
INITIAL COST
--------------------
BUILDINGS, ADDITIONS
EQUIPMENT & SUBSEQUENT TO
DESCRIPTION MARKET ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION
- ---------------------- -------------------- ----------- ------- ------------ -------------
Grand 24 Dallas, TX $ 11,214 3,060 15,540
Mission Valley 20 San Diego, CA 9,800 16,300
Promenade 16 Los Angeles, CA 17,198 6,021 22,479
Ontario Mills 30 Los Angeles, CA 15,268 5,521 19,779
Lennox 24 Columbus, OH 7,756 12,900
West Olive 16 St. Louis, MO 10,753 4,985 12,815
Studio 30 Houston, TX 15,934 6,023 20,377
Huebner Oaks 24 San Antonio, TX 10,192 3,006 13,894
First Colony 24 Houston, TX 10,666 19,100 67
Oakview 24 Omaha, NE 13,115 5,215 16,700 59
Leawood 20 Kansas City, MO 8,815 3,714 12,086 43
Gulf Pointe 30 Houston, TX 14,398 4,304 21,496 76
South Barrington 30 Chicago, IL 19,140 6,577 27,723 98
Mesquite 30 Dallas, TX 12,949 2,912 20,288 72
Hampton Town Center 24 Norfolk, VA 15,907 3,822 24,678 88
Pompano 18 Pompano Beach, FL 7,600 6,376 9,899 2,426
Raleigh Grand 16 Raleigh, NC 3,967 2,919 5,559
Paradise 24 Miami, FL 13,083 2,000 13,000 8,519
Pompano Kmart Pompano Beach, FL 600 2,423
Pompano Restaurant Pompano Beach, FL 200 803 430
Aliso Viejo 20 Los Angeles, CA 12,240 8,000 14,000
Bosie Stadium 20 Boise, ID 7,600 16,003
Woodridge 18 Chicago, IL 8,681 9,926 8,968
Cary Crossroads 20 Cary, NC 9,292 3,352 11,653 155
Tampa Palms 20 Tampa, FL 11,004 6,000 12,809
Palms Promenade San Diego, CA 14,611 7,500 17,750
On The Border Dallas, TX 674 205
Bennigans Dallas, TX 565 1,000
Bennigans Houston, TX 511 891
Texas Land & Cattle Dallas, TX 511 1,008
Texas Roadhouse Grill Atlanta, GA 886
Roadhouse Grill Atlanta, GA 868
Westminster 24 Denver, CO 16,270 5,850 17,314
Westminster Center Denver, CO 10,000 6,204 12,600 742
Subway Denver, Co 27
Westbank Palace 10 Westbank, LA 9,781 4,378 12,330
Houma Palace 10 Houma, LA 5,502 2,404 6,780
Hammond Palace 10 Hammond, LA 5,349 2,404 6,780
Elmwood Palace 10 Elmwood, LA 14,061 5,264 14,820
Clearview Palace 12 Clearview, LA 7,336 11,740
Sterling Forum 30 Sterling Heights, MI 17,117 5,975 17,956 3,400
Olathe Studio 30 Olathe, KS 12,227 4,000 15,935
Cherrydale 16 Greenville, SC 5,044 1,660 7,570
Livonia Livonia, MI 14,000 4,500 17,525
Hoffman 22 Alexandria, VA 14,061 22,035
Little Rock Rave Little Rock, AR 10,000 3,858 7,990
----------- ------- ------------ -----------
Subtotals carried over to page 62 $ 421,931 152,545 560,424 19,279
=========== ======= ============ ===========
GROSS AMOUNT AT DECEMBER 31, 2003
---------------------------------
BUILDINGS,
EQUIPMENT & ACCUMULATED DATE DEPRECIATION
DESCRIPTION MARKET LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE
- ---------------------- -------------------- -------- ------------- ------- ------------ -------- ------------
Grand 24 Dallas, TX 3,060 15,281 18,341 2,101 11/97 40 years
Mission Valley 20 San Diego, CA 16,028 16,028 2,204 11/97 40 years
Promenade 16 Los Angeles, CA 6,021 22,104 28,125 3,039 11/97 40 years
Ontario Mills 30 Los Angeles, CA 5,521 19,450 24,971 2,674 11/97 40 years
Lennox 24 Columbus, OH 12,685 12,685 1,744 11/97 40 years
West Olive 16 St. Louis, MO 4,985 12,602 17,587 1,733 11/97 40 years
Studio 30 Houston, TX 6,023 20,037 26,060 2,755 11/97 40 years
Huebner Oaks 24 San Antonio, TX 3,006 13,662 16,668 1,879 11/97 40 years
First Colony 24 Houston, TX 19,167 19,167 2,909 11/97 40 years
Oakview 24 Omaha, NE 5,215 16,759 21,974 2,544 11/97 40 years
Leawood 20 Kansas City, MO 3,714 12,129 15,843 1,841 11/97 40 years
Gulf Pointe 30 Houston, TX 4,304 21,572 25,876 3,184 2/98 40 years
South Barrington 30 Chicago, IL 6,577 27,821 34,398 4,049 3/98 40 years
Mesquite 30 Dallas, TX 2,912 20,360 23,272 2,879 4/98 40 years
Hampton Town Center 24 Norfolk, VA 3,822 24,766 28,588 3,394 6/98 40 years
Pompano 18 Pompano Beach, FL 6,376 12,325 18,701 1,652 8/98 40 years
Raleigh Grand 16 Raleigh, NC 2,919 5,559 8,478 784 8/98 40 years
Paradise 24 Miami, FL 2,000 21,519 23,519 2,591 11/98 40 years
Pompano Kmart Pompano Beach, FL 600 2,423 3,023 304 11/98 40 years
Pompano Restaurant Pompano Beach, FL 200 1,233 1,433 118 11/98 40 years
Aliso Viejo 20 Los Angeles, CA 8,000 14,000 22,000 1,750 12/98 40 years
Bosie Stadium 20 Boise, ID 16,003 16,003 2,000 12/98 40 years
Woodridge 18 Chicago, IL 9,926 8,968 18,894 1,004 6/99 40 years
Cary Crossroads 20 Cary, NC 3,352 11,808 15,160 1,165 6/99 40 years
Tampa Palms 20 Tampa, FL 6,000 12,809 18,809 1,308 6/99 40 years
Palms Promenade San Diego, CA 7,500 17,750 25,250 1,738 6/99 40 years
On The Border Dallas, TX 879 879 11/97
Bennigans Dallas, TX 565 1,000 1,565 134 11/97 20 years
Bennigans Houston, TX 652 750 1,402 179 11/97 20 years
Texas Land & Cattle Dallas, TX 1,519 1,519 11/97
Texas Roadhouse Grill Atlanta, GA 886 886 3/99
Roadhouse Grill Atlanta, GA 868 868 3/99
Westminster 24 Denver, CO 5,850 17,314 23,164 902 12/01 40 years
Westminster Center Denver, CO 6,204 13,342 19,546 690 12/01 40 years
Subway Denver, Co 27 27 9 4/2 5 years
Westbank Palace 10 Westbank, LA 4,378 12,330 16,708 552 3/2 40 years
Houma Palace 10 Houma, LA 2,404 6,780 9,184 303 3/2 40 years
Hammond Palace 10 Hammond, LA 2,404 6,780 9,184 303 3/2 40 years
Elmwood Palace 10 Elmwood, LA 5,264 14,820 20,084 664 3/2 40 years
Clearview Palace 12 Clearview, LA 11,740 11,740 526 3/2 40 years
Sterling Forum 30 Sterling Heights, MI 5,975 21,356 27,331 858 6/2 40 years
Olathe Studio 30 Olathe, KS 4,000 15,935 19,935 598 6/2 40 years
Cherrydale 16 Greenville, SC 1,660 7,570 9,230 285 6/2 40 years
Livonia Livonia, MI 4,500 17,525 22,025 621 8/2 40 years
Hoffman 22 Alexandria, VA 22,035 22,035 689 10/2 40 years
Little Rock Rave Little Rock, AR 3,858 7,990 11,848 208 12/2 40 years
-------- ------------ ------- ------------
Subtotals carried over to page 62 153,899 576,114 730,013 60,864
======== ============ ======= ============
61
ENTERTAINMENT PROPERTIES TRUST
Continued Schedule III - Real Estate and Accumulated Depreciation
December 31, 2003
INITIAL COST
--------------------
BUILDINGS, ADDITIONS
EQUIPMENT & SUBSEQUENT TO
DESCRIPTION MARKET ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION
- ---------------------- -------------------- ----------- ------- ------------ -------------
Subtotal from page 61 n/a $ 421,931 152,545 560,424 19,279
AmStar Cinema 16 Macon, GA 1,982 5,056
Star Southfield Center Southfield, MI 8,000 20,520
Southwind 12 Lawrence, KS 1,500 3,526
Veterans 24 Tampa, FL 14,624 6,100 18,431
New Roc City New Rochelle, NY 70,000 6,100 97,601
Harbour View Station Suffolk, VA 3,255 9,206
Columbiana Grande 14 Columbiana, SC 1,000 10,535
The Grande 18 Hialeah, FL 7,985
Johnny Carino's Mesquite, TX 789 990
Hawaiian Adv. Waterpark Garland, TX 3,300
Rocky Mountain Choc. Westminster, CO 16
Leasing Commissions Various 224
Development Property Various 29,152
----------- ------- ------------ -----------
Total $ 506,555 218,408 729,829 19,279
=========== ======= ============ ===========
GROSS AMOUNT AT DECEMBER 31, 2003
---------------------------------
BUILDINGS,
EQUIPMENT & ACCUMULATED DATE DEPRECIATION
DESCRIPTION MARKET LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED LIFE
- ---------------------- -------------------- -------- ------------- ------- ------------ -------- ------------
Subtotal from page 61 n/a 153,899 576,114 730,013 60,864 n/a n/a
AmStar Cinema 16 Macon, GA 1,982 5,056 7,038 95 3/3 40 years
Star Southfield Center Southfield, MI 8,000 20,520 28,520 403 5/3 40 years
Southwind 12 Lawrence, KS 1,500 3,526 5,026 51 6/3 40 years
Veterans 24 Tampa, FL 6,100 18,431 24,531 269 6/3 40 years
New Roc City New Rochelle, NY 6,100 97,601 103,701 3,219 10/3 40 years
Harbour View Station Suffolk, VA 3,255 9,206 12,461 34 11/3 40 years
Columbiana Grande 14 Columbiana, SC 1,000 10,535 11,535 139 11/3 40 years
The Grande 18 Hialeah, FL 7,985 7,985 12/3 40 years
Johnny Carino's Mesquite, TX 789 990 1,779 20 3/3 40 years
Hawaiian Adv. Waterpark Garland, TX 3,300 3,300 90 6/3 20 years
Rocky Mountain Choc. Westminster, CO 16 16 11/3 10 years
Leasing Commissions Various 224 224 1
Development Property Various 29,152 29,152
-------- ------------ ------- ------------
Total 219,762 745,519 965,281 65,185
======== ============ ======= ============
62
ENTERTAINMENT PROPERTIES TRUST
Schedule III - Real Estate and Accumulated Depreciation (continued)
Reconciliation
December 31, 2004
Real Estate:
Reconciliation:
Balance at beginning of the year $ 965,281
Acquisition of rental properties during the year 302,213
Disposition of rental properties during the year (29,831)
Acquisition of development properties, including related capitalized
costs, during the year 53,435
Transfer of development properties to rental properties (59,443)
-------------
Balance at close of year $ 1,231,655
=============
See accompanying independent auditor's report
ENTERTAINMENT PROPERTIES TRUST
Schedule III - Real Estate and Accumulated Depreciation (continued)
Reconciliation
December 31, 2003
Real Estate:
Reconciliation:
Balance at beginning of the year $ 739,160
Acquisition of rental properties during the year 209,954
Acquisition of development properties, including related capitalized
costs, during the year 16,167
-------------
Balance at close of year $ 965,281
=============
See accompanying independent auditor's report.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify our financial reports and to other
members of senior management and the Board of Trustees. A review and evaluation
was performed by our 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 our disclosure controls and procedures as of December
31, 2004. Based on that review and evaluation, the CEO and CFO have concluded
that our current disclosure controls and procedures, as designed and
implemented, were effective. There were no significant deficiencies or material
weaknesses identified in the course of such review and evaluation and,
therefore, no corrective measures were taken by us.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control - Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December
31, 2004. Our management's assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2004 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held on May 11, 2005 (the "Proxy Statement"), contains under the captions
"Election of Trustees", "Officers", and "Section 16(a) Beneficial Ownership
Reporting Compliance" the information required by Item 10 of this Form 10-K,
which information is incorporated herein by this reference.
We have adopted a Code of Business Conduct and Ethics that applies to our Chief
Executive Officer, Chief Financial Officer, and all other officers, employees
and trustees. The Code may be viewed on our website at www.eprkc.com and is
available in print to any shareholder who requests it.
64
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement contains under the captions "Election of Trustees --
Compensation of Trustees", "Executive Compensation", "Compensation Committee",
and "Company Performance" the information required by Item 11 of this Form 10-K,
which information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The Proxy Statement contains under the captions "Share Ownership" and "Equity
Compensation Plan Information" the information required by Item 12 of this Form
10-K, which information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Proxy Statement contains under the caption "Transactions Between the Company
and Trustees, Officers or their Affiliates" the information required by Item 13
of this Form 10-K, which information is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Proxy Statement contains under the caption "Ratification of Appointment of
Independent Auditors" the information required by Item 14 of this Form 10-K,
which information is incorporated herein by this reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Income for the years ended December 31,
2004, 2003 and 2002
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003, and 2002.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate and Accumulated Depreciation
(3) Exhibits
65
21 Subsidiaries of the Company
23 Consent of KPMG LLP
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
32 Certifications furnished pursuant to Section 906 of the
Sarbanes-Oxley Act.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 4, 2005 By /s/ David M. Brain
----------------------------------------
David M. Brain, President - Chief Executive
Officer
Dated: March 4, 2005 By /s/ Fred L. Kennon
----------------------------------------
Fred L. Kennon, Vice President - Chief
Financial Officer Treasurer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE AND TITLE DATE
/s/ Robert J. Druten March 4, 2005
- ----------------------------------------------------
Robert J. Druten, Chairman of the Board
/s/ David M. Brain March 4, 2005
- ----------------------------------------------------
David M. Brain, Chief Executive Officer and Trustee
/s/ Morgan G. Earnest, II March 4, 2005
- ----------------------------------------------------
Morgan G. Earnest, II, Trustee
/s/ James A. Olson March 4, 2005
- ----------------------------------------------------
James A. Olson, Trustee
/s/ Barrett Brady March 4, 2005
- ----------------------------------------------------
Barrett Brady, Trustee
67
List of Exhibits
The Company has incorporated by reference certain exhibits as specified
below pursuant to Rule 12b-32 under the Exchange Act.
3.1 Amended and Restated Declaration of Trust of the Company, which is
attached as Exhibit 3.2 to the Company's Form 8-K (Commission File No.
1-13561) filed on June 7, 1999, is hereby incorporated by reference as
Exhibit 3.1
3.2 Amendment to Declaration of Trust of the Company, which is attached as
Exhibit 3.1 to the Company's Form 8-K (Commission File No. 1-13561)
filed on January 11, 2005, is hereby incorporated by reference as
Exhibit 3.2
3.3 Bylaws of the Company, which are attached as Exhibit 3.3 to the
Company's Form 8-K (Commission File No. 1-13561) filed on June 7, 1999,
are hereby incorporated by reference as Exhibit 3.3
4.1 See Exhibits 3.1 and 3.2
4.2 See Exhibit 3.3
4.3 Form of share certificate for common shares of beneficial interest of
the Company, which is attached as Exhibit 4.5 to the Company's
Registration Statement on Form S-11, as amended, (Registration No.
333-35281), is hereby incorporated by reference as Exhibit 4.3
4.4 Form of Articles Supplementary for 9.50% Series A Cumulative Redeemable
Preferred Shares, which is attached as Exhibit 4.4 to the Company's
Form 8-A12B (Commission File No. 1-13561) filed on May 24, 2002, is
hereby incorporated by reference as Exhibit 4.4
4.5 Form of 9.50% Series A Preferred Share Certificate, which is attached
as Exhibit 4.5 to the Company's Form 8-A12B (Commission File No.
1-13561) filed on May 24, 2002, is hereby incorporated by reference as
Exhibit 4.5
4.6 Form of Articles Supplementary for 7.75% Series B Cumulative Redeemable
Preferred Shares, which is attached as Exhibit 4.6 to the Company's
Form 8-A12BA (Commission File No. 1-13561) filed on January 14, 2005,
and to the Company's Form 8-K filed on January 14, 2005, is hereby
incorporated by reference as Exhibit 4.6
4.7 Form of 7.75% Series B Cumulative Redeemable Preferred Share
Certificate,
68
which is attached as Exhibit 4.7 to the Company's Form 8-A12B
(Commission File No. 1-13561) filed on January 12, 2005, is hereby
incorporated by reference as Exhibit 4.7
4.8 Form of Registration Rights Agreement among Entertainment Properties
Trust, Whitby Centrum Limited Partnership, Oakville Centrum Limited
Partnership, Kanata Centrum Limited Partnership, Courtney Square
Limited Partnership and 2041197 Ontario Ltd., dated February 24, 2004,
which is attached as Exhibit 10.10 to the Company's Form 8-K/A
(Commission File No. 1-13561) filed on March 16, 2004, is hereby
incorporated by reference as Exhibit 4.8
4.9 Form of Registration Rights Agreement dated March 15, 2002 between EPR
and the selling shareholders named therein, which is attached as
Exhibit 4.7 to the Company's registration statement on Form S-3
(Commission File No. 333-119160) filed on September 21, 2004, is hereby
incorporated by reference as Exhibit 4.9
4.10 Form of Agreement Regarding Ownership Limit Waiver between the Company
and Cohen & Steers Capital Management, Inc., which is attached as
Exhibit 4.7 to the Company's Form 8-K (Commission File No. 1-13561)
filed on January 19, 2005, is hereby incorporated by reference as
Exhibit 4.10
10.1 Form of Mississauga Entertainment Centrum Agreement dated November 14,
2003 among Courtney Square Ltd., EPR North Trust and Entertainment
Properties Trust, which is attached as Exhibit 10.1 to the Company's
Form 8-K (Commission File No. 1-13561) filed March 15, 2004, is hereby
incorporated by reference as Exhibit 10.1
10.2 Form of Oakville Entertainment Centrum Agreement dated November 14,
2003 among Penex Winston Ltd., EPR North Trust and Entertainment
Properties Trust, which is attached as Exhibit 10.2 to the Company's
Form 8-K (Commission File No. 1-13561) filed March 15, 2004, is hereby
incorporated by reference as Exhibit 10.2
10.3 Form of Whitby Entertainment Centrum Agreement dated November 14, 2003
among Penex Whitby Ltd., EPR North Trust and Entertainment Properties
Trust, which is attached as Exhibit 10.3 to the Company's Form 8-K
(Commission File No. 1-13561) filed March 15, 2004, is hereby
incorporated by reference as Exhibit 10.3
10.4 Form of Kanata Entertainment Centrum Agreement dated November 14, 2003
among Penex Kanata Ltd., Penex Main Ltd., EPR North Trust and
Entertainment Properties Trust, which is attached as Exhibit 10.4 to
the Company's Form 8-K (Commission File No. 1-13561) filed March 15,
2004, is hereby incorporated by
69
reference as Exhibit 10.4
10.5 Form of Amending Agreements among Courtney Square Ltd., EPR North Trust
and Entertainment Properties Trust, which are attached as Exhibit 10.5
to the Company's Form 8-K (Commission File No. 1-13561) filed March 15,
2004, are hereby incorporated by reference as Exhibit 10.5
10.6 Form of Amending Agreements among Penex Winston Ltd., EPR North Trust
and Entertainment Properties Trust, which are attached as Exhibit 10.6
to the Company's Form 8-K (Commission File No. 1-13561) filed March 15,
2004, are hereby incorporated by reference as Exhibit 10.6
10.7 Form of Amending Agreements among Penex Whitby Ltd., EPR North Trust
and Entertainment Properties Trust, which are attached as Exhibit 10.7
to the Company's Form 8-K (Commission File No. 1-13561) filed March 15,
2004, are hereby incorporated by reference as Exhibit 10.7
10.8 Form of Amending Agreements among Penex Kanata Ltd., Penex Main Ltd.,
EPR North Trust and Entertainment Properties Trust, which are attached
as Exhibit 10.8 to the Company's Form 8-K (Commission File No. 1-13561)
filed March 15, 2004, are hereby incorporated by reference as Exhibit
10.8
10.9 Form of Note Purchase Agreement dated February 24, 2004 among
Entertainment Properties Trust and Courtney Square Limited Partnership,
Whitby Centrum Limited Partnership, Oakville Centrum Limited
Partnership and Kanata Centrum Limited Partnership, which is attached
as Exhibit 10.9 to the Company's Form 8-K (Commission File No. 1-13561)
filed March 15, 2004, is hereby incorporated by reference as Exhibit
10.9
10.10 Form of Registration Rights Agreement among Entertainment Properties
Trust, Whitby Centrum Limited Partnership, Oakville Centrum Limited
Partnership, Kanata Centrum Limited Partnership, Courtney Square
Limited Partnership and 2041197 Ontario Ltd., dated February 24, 2004
(see Exhibit 4.8)
10.11 Form of Agreement of Sale and Purchase between the Company and American
Multi-Cinema, Inc., which is attached as Exhibit 10.1 to Amendment No.
3, filed on November 13, 1997, to the Company's Registration Statement
on Form S-11 (Registration No. 333-35281), is hereby incorporated by
reference as Exhibit 10.11
10.12 Form of Option Agreement between the Company and American Multi-Cinema,
Inc., which is attached as Exhibit 10.2 to Amendment No. 3, filed on
November 13, 1997, to the Company's Registration Statement on Form S-11
(Registration
70
No. 333-35281), is hereby incorporated by reference as Exhibit 10.12
10.13 Form of Option Agreement between the Company and Clip Funding, Limited
Partnership, which is attached as Exhibit 10.3 to Amendment No. 3,
filed on November 13, 1997, to the Company's Registration Statement on
Form S-11 (Registration No. 333-35281), is hereby incorporated by
reference as Exhibit 10.13
10.14 Form of AMCE Right to Purchase Agreement between the Company and AMC
Entertainment Inc., which is attached as Exhibit 10.4 to Amendment No.
3, filed on November 13, 1997, to the Company's Registration Statement
on Form S-11 (Registration No. 333-35281), is hereby incorporated by
reference as Exhibit 10.14
10.15 Form of Lease entered into between the Company and American
Multi-Cinema, Inc., which is attached as Exhibit 10.5 to Amendment No.
3, filed on November 13, 1997, to the Company's Registration Statement
on Form S-11 (Registration No. 333-35281), is hereby incorporated by
reference as Exhibit 10.15
10.16 Form of Guaranty of Lease entered into between the Company and AMC
Entertainment, Inc. which is attached as Exhibit 10.6 to Amendment No.
3, filed on November 13, 1997, to the Company's Registration Statement
on Form S-11 (Registration No. 333-35281), is hereby incorporated by
reference as Exhibit 10.16
10.17 Amended and Restated Master Credit Agreement, dated March 29, 2004,
among the Company, 30 West Pershing, LLC and Fleet National Bank, which
is attached as Exhibit 10.1 to the Company's Form 8-K (Commission File
No. 1-13561) filed on April 5, 2004, is hereby incorporated by
reference as Exhibit 10.17
10.18 Form of Indemnification Agreement entered into between the Company and
each of its trustees and officers, which is attached as Exhibit 10.8 to
Amendment No. 1, filed October 28, 1997, to the Company's Registration
Statement on Form S-11 (Registration No. 333-35281), is hereby
incorporated by reference as Exhibit 10.18
10.19 1997 Share Incentive Plan, which is attached as Exhibit 10.9 to
Amendment No. 2, filed November 5, 1997, to the Company's Registration
Statement on Form S-11 (Registration No. 333-35281), is hereby
incorporated by reference as Exhibit 10.19
10.20 Deferred Compensation Plan for Non-Employee Trustees, which is attached
as Exhibit 10.10 to Amendment No. 2, filed November 5, 1997, to the
Company's
71
Registration Statement on Form S-11 (Registration No. 333-35281), is
hereby incorporated by reference as Exhibit 10.20
10.21 Annual Incentive Program, which is attached as Exhibit 10.11 to
Amendment No. 2, filed November 5, 1997, to the Company's Registration
Statement on Form S-11 (Registration No. 333-35281), is hereby
incorporated by reference as Exhibit 10.21
10.22 Employment Agreement with David M. Brain, which is attached as Exhibit
10.12 to Amendment No. 1, filed May 20, 2002, to the Company's
Registration Statement on Form S-3 (Registration No. 333-87242), is
hereby incorporated by reference as Exhibit 10.22
10.23 Employment Agreement with Fred L. Kennon, which is attached as Exhibit
10.24 to the Company's Form 10-K/A for the year ended December 31, 2003
(Commission File No. 1-13561), is hereby incorporated by reference as
Exhibit 10.23
10.24 Employment Agreement with Gregory K. Silvers, which is attached as
Exhibit 10.25 to the Company's Form 10-K/A for the year ended December
31, 2003 (Commission File No. 1-13561), is hereby incorporated by
reference as Exhibit 10.24
10.25 Form of Loan Agreement, dated as of June 29, 1998, between EPT DownREIT
II, Inc., as Borrower, and Archon Financial, L.P., as Lender, which is
attached as Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (Commission File No. 1-13561),
is hereby incorporated by reference as Exhibit 10.25
10.26 Form of Mortgage and Security Agreement, Deed of Trust and Security
Agreement and Loan Agreement for secured loans aggregating $20.2
million to 3 Theatres, Inc., a wholly-owned subsidiary of EPT DownREIT,
Inc., which is attached as Exhibit 10.16 to the Company's Form 10-Q for
the quarter ended March 31, 2000 (Commission File No. 1-13561), is
hereby incorporated by reference as Exhibit 10.26
10.27 Form of Loan Agreement, dated February 14, 2001, between Megaplex Nine,
Inc. and Bear Stearns Funding, Inc., which is attached as Exhibit 10.19
to the Company's Form 10-K for the year ended December 31, 2000
(Commission File No. 1-13561), is hereby incorporated by reference as
Exhibit 10.27
10.28 Form of Limited Partnership Interest Purchase Agreement, dated October
27, 2003, among EPT New Roc GP, Inc., EPT New Roc, LLC, LRC Industries,
Inc., DKH - New Roc Associates,
72
L.P., which is attached as Exhibit 10.1 to the Company's Form 8-K dated
October 27, 2003 and filed November 12, 2003 (Commission File No.
1-13561), is hereby incorporated by reference as Exhibit 10.28
10.29 Form of Second Amended and Restated Agreement of Limited Partnership of
New Roc Associates, L.P., which is attached as Exhibit 10.2 to the
Company's Form 8-K filed November 12, 2003 (Commission File No.
1-13561), is hereby incorporated by reference as Exhibit 10.29
10.30 Form of Loan Agreement, dated February 27, 2003, among Flik, Inc., as
Borrower, EPT DownREIT, Inc., as Indemnitor, and Secore Financial
Corporation, as Lender, which is attached as Exhibit 10.21 to the
Company's Form 8-K filed March 4, 2003 (Commission File No. 1-13561),
is hereby incorporated by reference as Exhibit 10.30
10.31 First Amended and Restated 1997 Share Incentive Plan included as
Appendix D to the Company's definitive proxy statement filed April 8,
2004 (Commission File No. 1-13561), is hereby incorporated by reference
as Exhibit 10.31
21 The list of the Company's Subsidiaries is attached hereto as Exhibit 21
23 Consent of KPMG LLP is attached hereto as Exhibit 23
31.1 Certification of David M. Brain, Chief Executive Officer of the
Company, is attached hereto as Exhibit 31.1
31.2 Certification of Fred L. Kennon, Chief Financial Officer of the
Company, is attached hereto as Exhibit 31.2
32 Certifications furnished pursuant to 18 U.S.C. Section 1350 of David M.
Brain, Chief Executive Officer of the Company, and Fred L. Kennon,
Chief Financial Officer of the Company, are attached hereto as Exhibit
32
73