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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
COMMISSION FILE NUMBER 1-13561
ENTERTAINMENT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 43-1790877
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
30 PERSHING ROAD, 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
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Common Shares of Beneficial Interest, New York Stock Exchange
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
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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.
THE AGGREGATE MARKET VALUE OF THE COMMON SHARES OF BENEFICIAL INTEREST OF THE
REGISTRANT HELD BY NON-AFFILIATES ON MARCH 9, 2001, WAS $217,020,764 (BASED ON
THE CLOSING SALES PRICE PER SHARE ON THE NEW YORK STOCK EXCHANGE ON MARCH 9,
2001 OF $14.74). AT MARCH 9, 2001, THERE WERE 14,723,254 COMMON SHARES OF
BENEFICIAL INTEREST OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2001 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.
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PART I
ITEM 1. BUSINESS
Investors are encouraged to 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 (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.
The Company completed an initial public offering ("IPO") of its common shares of
beneficial interest ("Shares") on November 18, 1997. The Company is the first
publicly-traded REIT formed exclusively to invest in entertainment-related
properties.
The Company is a self-administered REIT. As of December 31, 2000, the Company's
real estate portfolio was comprised primarily of 26 megaplex theatre properties,
including joint venture properties, located in eleven states, one
entertainment-themed retail center ("ETRC") development property located in
Westminster, Colorado, and land parcels leased to restaurant operators and
related properties adjacent to several of its theatre properties. The Company's
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"), Edwards Theatre Circuits, Inc. ("Edwards"),
Consolidated Theatres ("Consolidated") and Loews Cineplex Entertainment
("Loews").
The Company believes entertainment is an important sector of the retail real
estate industry and that, as a result of the Company's focus on properties in
this sector and the industry relationships of its management, it has a
competitive advantage in providing capital to operators of these types of
properties. The principal business strategy of the Company is to continue
acquiring 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.
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. The Company believes the development of megaplex
theatres has accelerated the obsolescence of many existing movie theatres by
setting new standards for moviegoers, who, in the Company's experience, have
demonstrated their preference for the more attractive surroundings, wider
variety of films and superior customer service typical of megaplex theatres (see
"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" under "Risk Factors").
The Company expects the development of megaplex theatres to continue in the
United States and abroad for the foreseeable future. As a result of the
significant capital commitment involved in building these properties and the
experience and industry relationships of the Company's management, the Company
believes it 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. The Company believes its ability to finance
these properties will enable it to continue to grow and diversify its asset
base. See Item 7 -- "Management's Discussion and Analysis" for a discussion of
capital requirements necessary for the Company's continued growth.
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BUSINESS OBJECTIVES AND STRATEGIES
The Company's business objectives are to continue to enhance shareholder value
by achieving predictable and increasing Funds From Operations ("FFO") per Share
(defined as net income plus depreciation divided by the number of Shares
outstanding) through the acquisition of high-quality properties leased to
entertainment and entertainment-related business operators. The Company intends
to achieve these objectives by continuing to execute the Growth Strategies,
Operating Strategies and Capitalization Strategies described below:
GROWTH STRATEGIES
- Purchase additional properties pursuant to existing agreements between the
Company and leading theatre operators.
- Enter into joint ventures with other developers or investors in real
estate.
- Develop or acquire additional megaplex theatre properties and lease those
properties to qualified theatre exhibitors.
- Develop or acquire, and lease to qualified operators or master tenants,
entertainment-themed retail centers ("ETRCs") and single-tenant,
out-of-home, location-based entertainment and entertainment-related
properties.
FUTURE PROPERTIES. The Company intends to pursue acquisitions of high-quality
entertainment related properties from operators with a strong market presence.
Pursuant to agreements with AMCE, Muvico and Real Estate Innovations LLC, the
Company has the right to acquire and lease back to the operator a number of
existing and future megaplex theatre properties. See "Tenants and Leases" and
"Additional Property Acquisitions" in Item 2 -- "Properties" for a discussion of
these agreements.
OPERATING STRATEGIES
- Purchase single-tenant properties supported by long-term leases or
multi-tenant properties that are substantially leased to minimize the risks
inherent in initial leasing.
- Structure leases, where possible, on a triple-net or similar basis under
which the tenants bear substantially all operational expenses connected
with the properties.
- Structure leases for contractual increases in rent and/or percentage rent
based upon a percentage of a tenant's gross sales over a pre-determined
level.
- Develop and maintain long-term working relationships with theatre,
restaurant, retail and other entertainment-related business operators and
developers.
- Diversify the Company's asset base by property type, geographic location
and tenant.
LEASE RISK MINIMIZATION. To avoid initial lease-up risks and produce a
predictable income stream, the Company typically acquires single-tenant
properties that are leased under long-term leases. The Company believes its
willingness to make long-term investments in properties offers tenants financial
flexibility and allows tenants to allocate capital to their core businesses.
LEASE STRUCTURE. The Company typically structures leases on a triple-net basis
under which the tenants bear the principal portion of the financial and
operational responsibility for 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.
TENANT RELATIONSHIPS. The Company intends to continue developing and maintaining
long-term working relationships with theatre, restaurant 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.
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PORTFOLIO DIVERSIFICATION. The Company will endeavor to further diversify its
asset base by property type, geographic location and tenant. In pursuing this
diversification strategy, the Company 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.
CAPITALIZATION STRATEGIES
- Employ leverage to fund additional acquisitions.
- Pursue joint venture opportunities and other arrangements to fund
additional property acquisitions.
- Maintain a debt to total capitalization ratio consistent with prudent
management and market expectations.
- Pay regular distributions and periodically increase distributions to
shareholders to the extent expected increases in FFO and Cash Available
for Distribution (net earnings plus depreciation and amortization minus
capital expenditures and principal payments on indebtedness) are realized.
USE OF LEVERAGE; DEBT TO TOTAL CAPITALIZATION. The Company seeks to enhance
shareholder return through the use of leverage (see "Risk Factors -- We must
obtain new financing in order to grow" and "Liquidity and Capital Resources" and
"Capital Requirements for Additional Acquisitions and Future Growth" in Item 7
-- "Management's Discussion and Analysis"). In addition, the Company may in the
future seek to issue additional equity as circumstances warrant and
opportunities to do so become available. The Company expects to maintain a debt
to total capitalization ratio (i.e., total debt of the Company as a percentage
of shareholder's equity plus total debt) of approximately 50%.
JOINT VENTURES. The Company will examine and pursue potential joint venture
opportunities with institutional investors or developers if they are considered
to add value to the shareholders. The Company may employ higher leverage in
joint ventures (See "Risk Factors -- Joint Ventures may limit flexibility with
jointly held investments").
PAYMENT OF REGULAR DISTRIBUTIONS. The Company has paid and expects to continue
paying quarterly dividend distributions to its shareholders. Among the factors
the Board of Trustees considers in setting the distribution rate are the
Company's results of operations, including FFO per Share, and the Company's Cash
Available for Distribution. The Company expects to periodically increase
distributions 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" in Item 7 of this Form 10-K.
COMPETITION
The Company competes 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 the Company was the first publicly
traded REIT formed to specialize in entertainment-themed properties, other REITs
may seek to finance entertainment properties as new megaplex theatres, ETRCs and
related restaurant and retail properties are developed.
EMPLOYEES
As of December 31, 2000, the Company had six full time employees.
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RISK FACTORS
There are many factors 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 15 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 tenants 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.
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 may be required to take significant charges against earnings
resulting from this obsolescence. Megaplex theatre operators could also be
adversely affected by any overbuilding of megaplex theatres in their markets and
the cost of financing, building and leasing megaplex theatres. During 2000, we
believe these trends and other events had an adverse impact on the movie theatre
exhibition industry as a whole.
During 2000, several movie exhibition companies filed for reorganization under
bankruptcy protection, including one of our tenants, Edwards Theatres. Although
our two leases with Edwards have been affirmed in the bankruptcy process and we
did not suffer any loss of rental income, if any other of our tenants should
file for bankruptcy, or otherwise default on a lease, our ability to recover our
investment in the property would be uncertain.
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-themed 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 69% 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 the 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
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pay shareholder dividends remain substantially dependent on AMC's performance
under its leases and AMCE's performance under its guaranty. We believe AMC
occupies a stronger position when compared with other theatre operators 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. Peter
C. Brown, the Chairman of our Board of Trustees, is Chairman of AMCE. Mr. Brown
does not participate in discussions with AMC regarding acquisition or lease
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, the debt could go into default. Our debt
financing is secured by mortgages on most of our properties. If we fail to meet
our mortgage payments, the lenders could declare a default and foreclose on
those properties. Although it has been our policy that total debt represent
approximately 50% of our total capitalization, we may utilize higher leverage in
the future if we believe it is reasonable to do so.
A PORTION OF OUR SECURED DEBT HAS "HYPER-AMORTIZATION" PROVISIONS WHICH MAY
REQUIRE US TO REFINANCE THE DEBT OR SELL THE PROPERTIES SECURING THE DEBT PRIOR
TO MATURITY
As of December 31, 2000, we had approximately $102 million outstanding under
secured mortgage arrangements, which contain "hyper-amortization" features, in
which the principal payment schedule is rapidly accelerated, and our principal
payments are substantially increased, after a period of time but prior to the
maturity date of the loan. We undertook this debt on the assumption that we can
refinance the debt when these hyper-amortization payments become 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.
WE MUST OBTAIN NEW FINANCING IN ORDER TO GROW
As a REIT, we are required to distribute at least 95% of our net income to
shareholders in the form of dividends. Effective January 1, 2001, this
requirement falls to 90% of our net income. 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 cinema exhibition industry and the performance of real estate investment
trusts generally. Our ability to raise cash by selling new shares to the public
has been limited by covenants in our loan agreements and our share price,
although our share price has increased during the first quarter of 2001 and the
loan agreements with the restrictive covenants have been refinanced. 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 raise equity capital privately or publicly.
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
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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
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.
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:
- 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.
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.
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JOINT VENTURES MAY LIMIT FLEXIBILITY WITH JOINTLY OWNED INVESTMENTS
We may 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. 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 assure you that the price we would
have to pay or the timing of the acquisition would be favorable to us.
WE FACE ADDITIONAL RISKS IF WE DEVELOP PROPERTIES
Our entertainment-themed retail center development in Westminster, Colorado and
similar properties we may seek to develop in the future will involve risks not
typically encountered in the purchase and lease-back of megaplex theatres which
are developed by the operator. The development of 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 fluctuations in occupancy rates, which could affect
our operating results.
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, and we believe our theatres provide disabled
access in compliance 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.
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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.
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.
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 at historical rates or to increase our
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 dividend rate, that could have an adverse effect on the market
price of our 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 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 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 or take charges against earnings resulting from the
obsolescence of multiplex theatres, 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 share price in 2000 and could have an adverse impact in
the future if those trends persist in the cinema exhibition industry.
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 EPR, which is
not approved by our Board of Trustees. These include:
- A staggered Board of Trustees that can be increased in number
- 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
- The ability of the Board of Trustees to issue preferred shares or
reclassify preferred or common shares without shareholder approval
- Limits on the ability of shareholders to remove trustees without cause
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- 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
- AMCE's ability to terminate a Right to Purchase Agreement for
additional megaplex theatre properties if there is a change in control
of EPR
- Provisions of Maryland law limiting a court's ability to scrutinize the
trustees' exercise of their business judgment in the event of a hostile
takeover
- Provisions in loan or joint venture agreements putting EPR in default
upon a change in control
- Provisions of employment agreements with our officers calling for share
purchase loan forgiveness upon a hostile change in control
Any or all of these provisions could delay or prevent a change in control of
EPR, even if the change was in our shareholders' interest or offered a greater
return to our shareholders.
ITEM 2. PROPERTIES
As of December 31, 2000, the Company's real estate portfolio consisted of 26
megaplex theatre properties (including joint ventures), one entertainment-themed
retail center ("ETRC"), and six restaurant locations. Except as otherwise noted,
all of the real estate investments listed below are owned or ground leased
directly by the Company. The following table lists the Company's properties,
their locations, acquisition dates, number of theatre screens, number of seats,
gross square footage, and the tenant.
Building
Acquisition (gross
Property Location Date Screens Seats sq. ft) Tenant
-------- -------- ----------- ------- ----- --------- ------
MEGAPLEX THEATRE PROPERTIES
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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) Houston, TX 11/97 24 5,098 107,690 AMC
Oakview 24 (1) Omaha, NE 11/97 24 5,098 107,402 AMC
Leawood Town Center 20 Kansas City, MO 11/97 20 2,995 75,224 AMC
Gulf Pointe 30 (2) Houston, TX 2/98 30 6,008 130,891 AMC
South Barrington 30 Chicago, IL 3/98 30 6,210 130,891 AMC
Cantera 30 (2) (6) Chicago, IL 3/98 30 6,210 130,757 AMC
Mesquite 30 (2) Dallas, TX 4/98 30 6,008 130,891 AMC
Hampton Town Center 24 Norfolk, VA 6/98 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 8/98 18 3,424 73,637 Muvico
Paradise 24 Davie, FL 11/98 24 4,180 96,497 Muvico
Boise Stadium (1) (4) Boise, ID 12/98 20 4,734 140,300 Edwards
Aliso Viejo 20 Los Angeles, CA 12/98 20 4,352 98,557 Edwards
Westminster 24 (5) Westminster, CO 6/99 24 4,812 107,000 AMC
Woodridge 18 (2) Woodridge, IL 6/99 18 4,343 80,600 Loews
Tampa Palms 20 Tampa, FL 6/99 20 4,200 83,000 Muvico
Palm Promenade 24(1) San Diego, CA 1/00 24 4,577 88,610 AMC
9
12
Crossroads 20 Raleigh, NC 1/00 20 3,936 77,475 Consolidated
--- ------- ----------
Subtotal Megaplex Theatres 600 119,297 2,652,988
OTHER PROPERTIES
Westminster Promenade (5) Westminster, CO 10/98 -- -- -- Multi-Tenant
Pompano Kmart Pompano Beach, FL 11/98 -- -- 80,540 Kmart
Nickels Restaurant Pompano Beach, FL 11/98 -- -- 5,600 Nickels
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.
Roadhouse Grill Atlanta, GA 8/00 -- -- 6,850 Roadhouse Grill
--- ------- ---------
TOTAL 600 119,297 2,772,308
(1) Third party ground leased property. Although the Company is the tenant
under the ground leases and has assumed responsibility for performing the
obligations thereunder, pursuant to the Leases, the theatre tenants are
responsible for performing the Company's obligations under the ground
leases.
(2) In addition to the theatre property itself, the Company has acquired land
parcels adjacent to the theatre property, which the Company has or
intends to ground lease or sell to restaurant or other entertainment
themed operators.
(3) Property is included as security for a $105 million mortgage facility.
(4) Property is included as security for a $20 million mortgage facility.
(5) Property is included in the Westminster ETRC joint venture.
(6) Property is included in the Atlantic-EPR joint venture.
OFFICE LOCATION. The Company's executive office is located in Kansas City,
Missouri and is leased from a third party landlord. The office occupies
approximately 5,200 square feet with annual rentals of $107,856.
TENANTS AND LEASES
The Company's existing leases on megaplex theatres provide for aggregate annual
rentals of approximately $51.6 million (on a consolidated basis, excluding joint
ventures), or an average annual rental of approximately $2.2 million per
property. The Leases have an average remaining base term lease life of 14 years
and may be extended for predetermined extension terms at the option of the
tenant. The 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.
ADDITIONAL PROPERTY ACQUISITIONS
The following table lists the megaplex theatre properties acquired during 2000:
PROPERTY LOCATION OPERATOR SCREENS
-------- -------- -------- -------
Palm Promenade 24 San Diego, CA AMC 24
Crossroads 20 Raleigh, NC Consolidated 20
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the quarterly periods indicated, the high
and low sales prices per Share for the Company's Shares on the New York Stock
Exchange under the trading symbol "EPR" and the distributions declared.
Share Price
----------- Declared
High Low Distribution
---- --- ------------
2000
----
Fourth Quarter $12.25 $10.5625 $0.44
Third Quarter $14.625 $10.4375 0.44
Second Quarter $15.00 $12.50 0.44
First Quarter $14.4375 $11.1275 0.44
1999
----
Fourth Quarter $14.3125 $12.75 $0.42
Third Quarter $18.00 $14.625 0.42
Second Quarter $19.9375 $16.25 0.42
First Quarter $17.4375 $15.625 0.42
1998
----
Fourth Quarter $18.9375 $16.00 $0.40
Third Quarter $18.875 $14.00 0.40
Second Quarter $19.8125 $18.25 0.40
First Quarter $20.00 $19.1875 0.40
At March 26, 2001, there were approximately 7,174 holders of record of the
Company's Shares.
The Company declared quarterly distributions to shareholders aggregating $1.76
per Share in 2000 and $1.68 per Share in 1999.
On March 14, 2001, the Company declared a dividend of $0.45 per Share for the
first quarter of 2001, payable April 17, 2001 to shareholders of record as of
March 30, 2001.
While the Company intends to continue paying regular quarterly dividends, future
dividend declarations will be at the discretion of the Board of Trustees and
will depend on the actual cash flow of the Company, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code 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, the operating
expenses of the Company, interest expense on Company borrowings, the ability of
lessees to meet their obligations to the Company and any unanticipated capital
expenditures (See "Liquidity and Capital Resources" in Item 7 -- "Management's
Discussion and Analysis").
11
14
ITEM 6. SELECTED FINANCIAL DATA
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
2000 1999 1998 1997
------------ ------------ ------------ ------------
Rental revenue $53,287 $48,319 $35,031 $ 1,887
Income from joint venture 2,104 333 -- --
------- ------- ------- --------
Total revenues 55,391 48,652 35,031 1,887
Depreciation and amortization 10,460 9,982 7,280 659
Income from operations 43,081 36,491 25,699 855
Interest expense (income) 18,909 13,278 6,461 (587)
Net income 24,172 23,213 19,238 1,442
Net income per common Share:
Basic $1.63 $1.60 $1.39 $0.10
Diluted 1.63 1.60 1.39 0.10
Weighted average number of common Shares
outstanding
Basic 14,786 14,516 13,802 13,800
Diluted 14,810 14,552 13,880 13,860
Funds from operations $34,909 $32,618 $26,213 $ 2,101
Cash dividends declared per common Share $1.76 $1.68 $1.60 $0.18
December 31, December 31, December 31, December 31,
2000 1999 1998 1997
------------ ------------ ------------ ------------
Net real estate investments $472,795 $478,706 $455,997 $213,812
Total assets 513,534 516,291 464,371 259,488
Dividends payable 6,479 6,273 5,545 2,495
Long-term debt 244,547 238,737 206,037 0
Total liabilities 252,915 249,904 215,809 8,262
Shareholders' equity 260,619 266,387 248,562 251,226
12
15
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 of the Company 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 and other matters, which reflect management's best judgment
based on factors currently known. Actual results and experience could differ
materially from the anticipated results and other expectations expressed in the
Company's forward-looking statements as a result of a number of factors,
including but not limited to those discussed in this Item and in Item 1
"Business -- Risk Factors".
RESULTS OF OPERATIONS
This discussion of the results of operations compares the year ended December
31, 2000 with the year ended December 31, 1999 and the year ended December 31,
1999 with the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Total revenues increased $6.7 million, or 14%, to $55.4 million for the year
ended December 31, 2000, as compared to $48.7 million for the year ended
December 31, 1999. This increase resulted from the combined effect of (i) the
acquisition of 2 properties in 2000 providing incremental revenues of $3.3
million, (ii) the full-year impact of 2 properties acquired in mid-1999
providing incremental revenues of $2.3 million, (iii) restaurant pad sites
commencing operation in 2000 and rent adjustments as provided under some leases
($0.8 million), and (iv) the net impact of joint ventures (including the effect
of non-consolidation) of $0.3 million.
General and administrative expense decreased $0.3 million to $1.9 million for
the year ended December 31, 2000 as compared to $2.2 million for the year ended
December 31, 1999. The decrease during 2000 was due primarily to reduced
acquisition activity in 2000 and reductions in costs related to the closing of
the Company's California office.
Depreciation and amortization expense increased $0.5 million to $10.5 million
for the year ended December 31, 2000 as compared to $10.0 million for the year
ended December 31, 1999. The increase was a result of additional property
acquisitions during 2000 and 1999 as previously mentioned.
Net interest expense increased $5.6 million to $18.9 million for the year ended
December 31, 2000, as compared to $13.3 million for the year ended December 31,
1999. The increase in interest expense during 2000 was primarily attributable to
overall increases in market interest rates and increases in the spread costs of
outstanding advances under the Company's $127 million Bank Credit Facility.
Net income for the year ended December 31, 2000 increased $1.0 million to $24.2
million or $1.63 per diluted Share. For the year ended December 31, 1999, net
income was $23.2 million or $1.60 per diluted Share.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total revenues increased $13.6 million, or 39%, to $48.7 million for the year
ended December 31, 1999, as compared to $35.0 million for the year ended
December 31, 1998. This increase resulted from the combined effect of (i) the
full year impact of 9 properties acquired in 1998 providing incremental revenues
of $10.0 million, (ii) the acquisition of 3 properties in 1999 providing
incremental revenues of $2.6 million, (iii) annual rent adjustments as provided
under some leases ($0.7 million) and (iv) income from a joint venture formed in
June 1999 ($0.3 million).
13
16
General and administrative expense increased $0.1 million to $2.2 million for
the year ended December 31, 1999 as compared to $2.1 million for the year ended
December 31, 1998. The increase during 1999 was due primarily to increases in
personnel costs and costs related to the growth of the Company.
Depreciation and amortization expense increased $2.7 million to $10.0 million
for the year ended December 31, 1999 as compared to $7.3 million for the year
ended December 31, 1998. The increase was a result of additional property
acquisitions during 1999 and 1998.
Net interest expense increased $6.8 million to $13.3 million for the year ended
December 31, 1999, as compared to $6.5 million for the year ended December 31,
1998. The increase in interest expense during 1999 was primarily attributable to
the increase in outstanding advances under the Company's $150 million Bank
Credit Facility.
Net income for the year ended December 31, 1999 increased $4.0 million to $23.2
million or $1.60 per diluted Share. For the year ended December 31, 1998, net
income was $19.2 million or $1.39 per diluted Share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had $5.9 million in cash and cash
equivalents, secured mortgage indebtedness of approximately $125.5 million, and
indebtedness of $119 million under the Bank Credit Facility. The $244.5 million
aggregate principal amount of indebtedness had a weighted average interest rate
of 8.2% as of December 31, 2000.
As of December 31, 2000, the Company had drawn $119 million under the Bank
Credit Facility. The Bank Credit Facility was repaid and retired on February 14,
2001 upon completion and issuance of $125 million in mortgage debt secured by
nine megaplex theatre properties. The Company is in the process of negotiating a
new credit facility to be utilized to acquire additional entertainment
properties, invest in joint ventures and to fund operations, if needed. (See
"Risk Factors -- We must obtain new financing in order to grow").
The Company anticipates that its cash from operations will provide adequate
liquidity to conduct its operations, fund administrative and operating costs and
interest and principal payments on its debt, and allow distributions to the
Company's shareholders and avoidance of corporate level federal income or excise
tax in accordance with Internal Revenue Code requirements for qualification as a
REIT.
CAPITAL REQUIREMENTS FOR ADDITIONAL ACQUISITIONS AND FUTURE GROWTH
The ability of the Company to continue to increase FFO and, thereby, increase
distributions to its shareholders will depend on the Company's ability to grow
its portfolio by making additional property acquisitions, which in turn will
depend on the Company's continued access to additional financing in the capital
markets.
As opportunities are presented for property acquisitions consistent with the
Company's investment objectives, the Company intends to consider: (i) entering
into joint ventures with other investors to acquire or develop properties, (ii)
issuing Company securities in exchange for properties, and/or (iii) conducting a
public offering or direct placement of the Company's securities designed to
raise capital for acquisitions. There can be no assurance these objectives can
be achieved (See "We must obtain new financing in order to grow", "Joint
ventures may limit flexibility with jointly owned investments" and "Risks that
may affect the market price of our Shares" under "Risk Factors").
14
17
FUNDS FROM OPERATIONS
The Company believes that to facilitate a clear understanding of the historical
consolidated operating results, FFO should be examined in conjunction with net
income as presented in the Consolidated Financial Statements. FFO is considered
by management as an appropriate measure of the performance of an equity REIT
because it is predicated on cash flow analysis, which management believes is
more reflective of the value of real estate companies, such as the Company,
rather than a measure predicated on net income, which includes non-cash
expenses, such as depreciation. FFO is generally defined as net income plus
certain non-cash items, primarily depreciation of real estate properties.
Comparison of our presentation of FFO, using the definition adopted by the
National Association of Real Estate Investment Trusts (NAREIT), to similarly
titled measures for other REITs may not necessarily be meaningful due to
possible differences in the application of the NAREIT definition used by such
REITs.
The following table summarizes the Company's FFO for the years ended
December 31, 2000 and December 31, 1999 (in thousands except per Share data):
Year ended Year ended
December 31, 2000 December 31, 1999
----------------- -----------------
Net Income $24,172 $ 23,213
Real estate depreciation 10,737 9,405
------- ---------
FFO $34,909 $ 32,618
======= =========
INFLATION
Investments by the Company are financed with a combination of equity and secured
mortgage indebtedness. During inflationary periods, which are generally
accompanied by rising interest rates, the Company's 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 the Company's megaplex theatre leases provide for base and participating
rent features. To the extent inflation causes tenant revenues at the Company's
properties to increase over baseline amounts, the Company would participate in
those revenue increases through its right to receive annual percentage rent. The
Company's leases also 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.
All of the Company's theatre leases are triple-net leases requiring the lessees
to pay substantially all expenses associated with the operation of the
properties, thereby minimizing the Company's exposure to increases in costs and
operating expenses resulting from inflation.
FORWARD LOOKING INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS 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. THE COMPANY'S ACTUAL FINANCIAL CONDITION,
RESULTS OF OPERATIONS OR BUSINESS MAY VARY MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD LOOKING STATEMENTS AND INVOLVE VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED UNDER "BUSINESS -- RISK FACTORS."
INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS.
15
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, primarily relating to potential losses
due to changes in interest rates. The Company seeks to mitigate the effects of
fluctuations in interest rates by matching the term of new investments with new
long-term fixed rate borrowings whenever possible.
The Company is subject to risks associated with debt financing, including the
risk that existing indebtedness may not be refinanced or that the terms of such
refinancing may not be as favorable as the terms of current indebtedness. The
majority of the Company's borrowings are subject to mortgages or contractual
agreements which limit the amount of indebtedness the Company may incur.
Accordingly, if the Company is unable to raise additional equity or borrow money
due to these limitations, the Company's ability to acquire additional properties
may be limited.
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)
DECEMBER 31, 2000 2001 2002 2003 2004 2005 Thereafter
----------------- ---- ---- ---- ---- ---- ----------
Fixed rate debt $4.8 $1.6 $1.8 $1.9 $20.5 $94.9
Average interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Variable rate debt $119 $-- $-- $-- $-- $--
Average interest rate
(as of December 31, 2000) 9.5% -- -- -- -- --
DECEMBER 31, 1999 2000 2001 2002 2003 2004 Thereafter
----------------- ---- ---- ---- ---- ---- ----------
Fixed rate debt $1.2 $4.6 $1.4 $1.5 $1.6 $96.5
Average interest rate 6.8% 6.8% 6.8% 6.8% 6.8% 6.8%
Variable rate debt $-- $132.0 $-- $-- $-- $--
Average interest rate
(as of December 31, 1999) -- 7.2% -- -- -- --
On February 14, 2001, the Company completed the issuance of $125 million in
mortgage financing secured by nine megaplex theatre properties, with a maturity
date of March 2006. The proceeds from the financing were used to repay the $119
million in loans outstanding under the Bank Credit Facility.
As the table incorporates only those exposures that existed as of December 31,
2000, it does not consider exposures or positions that could arise after that
date.
16
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Entertainment Properties Trust
CONTENTS
Report of Independent Auditors...................................... 18
Audited Financial Statements
Consolidated Balance Sheets ........................................ 19
Consolidated Statements of Income .................................. 20
Consolidated Statements of Changes in Shareholders' Equity ......... 21
Consolidated Statements of Cash Flows .............................. 22
Notes to Consolidated Financial Statements ......................... 23
Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation ............ 31
17
20
Report of Independent Auditors
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, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(d). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Entertainment
Properties Trust at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Ernst & Young LLP
Kansas City, Missouri
January 19, 2001
18
21
Entertainment Properties Trust
Consolidated Balance Sheets
(In thousands except share and per share data)
DECEMBER 31
-----------------------
2000 1999
--------- ---------
ASSETS
Rental properties, net $ 460,537 $ 466,406
Land held for development 12,258 12,300
Investment in joint ventures 27,391 9,117
Cash and cash equivalents 5,948 22,265
Notes receivable 434 406
Other assets 6,966 5,797
--------- ---------
Total assets $ 513,534 $ 516,291
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 1,499 $ 1,538
Dividends payable 6,479 6,273
Unearned rents 390 3,356
Long-term debt 244,547 238,737
--------- ---------
Total liabilities 252,915 249,904
Commitments and contingencies -- --
Shareholders' equity
Common shares, $.01 par value; 50,000,000 shares
authorized; 15,195,926 and 15,091,051 shares issued in
2000 and 1999, respectively 152 151
Preferred shares, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding -- --
Additional paid-in-capital 278,574 277,126
Treasury stock, at cost: 472,200 and 155,200 shares in
2000 and 1999, respectively (6,533) (2,136)
Loans to shareholders (3,525) (2,400)
Non-vested shares (575) (805)
Distributions in excess of net income (7,474) (5,549)
--------- ---------
Shareholders' equity 260,619 266,387
--------- ---------
Total liabilities and shareholders' equity $ 513,534 $ 516,291
========= =========
See accompanying notes.
19
22
Entertainment Properties Trust
Consolidated Statements of Income
(In thousands except per share data)
YEAR ENDED DECEMBER 31,
2000 1999 1998
------- ------- -------
Rental revenue $53,287 $48,319 $35,031
General and administrative expense 1,850 2,179 2,052
Depreciation and amortization 10,460 9,982 7,280
------- ------- -------
Income from operations 40,977 36,158 25,699
Interest expense 18,909 13,278 6,461
Equity in income from joint venture 2,104 333 --
------- ------- -------
Net income $24,172 $23,213 $19,238
======= ======= =======
Basic and diluted net income per common share $ 1.63 $ 1.60 $ 1.39
======= ======= =======
Shares used for computation:
Basic 14,786 14,516 13,802
Diluted 14,810 14,552 13,880
See accompanying notes.
20
23
ENTERTAINMENT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
COMMON ADDITIONAL DISTRIBUTIONS
STOCK PAID-IN TREASURY LOANS TO NON-VESTED IN EXCESS OF
SHARES PAR CAPITAL STOCK SHAREHOLDERS SHARES NET INCOME TOTAL
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 13,860 $139 $ 255,720 $ -- $(2,400) $ (1,180) $ (1,053) $ 251,226
Issuance of common stock 2 -- 36 -- -- -- -- 36
Amortization of stock grant -- -- -- -- 240 -- 240
Net income -- -- -- -- -- 19,238 19,238
Dividends to common
shareholders
($1.60 per share) -- -- -- -- -- (22,178) (22,178)
-------------------------------------------------------------------------------------------
Balance at December 31, 1998 13,862 139 255,756 -- (2,400) (940) (3,993) 248,562
Issuance of common stock 1,200 12 20,905 -- -- -- -- 20,917
Shares issued to Directors 3 -- 54 -- -- -- -- 54
Issuance of stock grant 18 -- 298 -- -- (238) -- 60
Amortization of stock grant -- -- -- -- 373 -- 373
Net income -- -- -- -- -- 23,213 23,213
Shares issued through -- -- -- --
Dividend Reinvestment Plan 8 -- 113 113
Purchase of treasury stock -- -- (2,136) -- -- -- (2,136)
Dividends to common --
shareholders
($1.68 per share) -- -- -- -- (24,769) (24,769)
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 15,091 151 277,126 (2,136) (2,400) (805) (5,549) 266,387
Loans to officers 80 1 1,124 -- (1,125) -- -- --
Issuance of stock grant 21 -- 265 -- -- (220) -- 45
Amortization of stock grant -- -- -- -- -- 450 -- 450
Net income -- -- -- -- -- -- 24,172 24,172
Purchase of treasury stock -- -- -- (4,397) -- -- -- (4,397)
Shares issued to Directors 4 -- 59 -- -- -- -- 59
Dividends to common
shareholders
($1.76 per share) -- -- -- -- (26,097) (26,097)
-------------------------------------------------------------------------------------------
Balance at December 31, 2000 15,196 $152 $ 278,574 $(6,533) $(3,525) $ (575) $ (7,474) $ 260,619
===========================================================================================
See accompanying notes
21
24
Entertainment Properties Trust
Consolidated Statements of Cash Flows
(In thousands)
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
OPERATING ACTIVITIES
Net income $ 24,172 $ 23,213 $ 19,238
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 10,460 9,982 7,280
Compensation pertaining to common shares
issued to trustees and employees 104 114 36
Increase in other assets (1,253) (374) (5,642)
(Decrease) increase in other liabilities 165 318 (2,826)
(Decrease) increase in unearned rent (2,966) 195 1,286
-------- -------- ---------
Net cash provided by operating activities 30,682 33,448 19,372
INVESTING ACTIVITIES
Acquisition of rental properties (37,027) (36,741) (231,511)
Net proceeds from contribution of rental properties
to joint venture 13,867 -- --
Proceeds from sale of equity interest in joint venture 1,428 -- --
Acquisition of development properties (789) (4,490) (17,649)
-------- -------- ---------
Net cash used in investing activities (22,521) (41,231) (249,160)
FINANCING ACTIVITIES
Issuance of common shares, net of costs -- 21,029 --
Proceeds from long-term debt 20,175 34,000 206,459
Principal payments on long-term debt (14,365) (1,145) (422)
Purchase of treasury stock (4,397) (2,136) --
Distribution to shareholders (25,891) (24,041) (19,128)
-------- -------- ---------
Net cash provided by (used in) financing activities (24,478) 27,707 186,909
-------- -------- ---------
Net increase (decrease) in cash
and cash equivalents (16,317) 19,924 (42,879)
Cash and cash equivalents at beginning of period 22,265 2,341 45,220
-------- -------- ---------
Cash and cash equivalents at end of period $ 5,948 $ 22,265 $ 2,341
======== ======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Declaration of dividend to common shareholders $ 6,479 $ 6,273 $ 5,545
======== ======== =========
Transfer of land held for development to rental property $ 831 $ 722 $ --
======== ======== =========
Contribution of rental properties to joint ventures $ 33,568 $ 8,658 $ --
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 18,048 $ 14,229 $ 5,738
======== ======== =========
See accompanying notes
22
25
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
1. ORGANIZATION
Entertainment Properties Trust (the Company) is a Maryland real estate
investment trust (REIT) organized on August 29, 1997. The Company was formed to
acquire and develop entertainment properties including megaplex theatres and
entertainment-themed retail centers.
In November 1997, the Company completed an initial public offering of 13,860,000
common shares, the proceeds of which were used to acquire theatre properties in
accordance with its business plan.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Entertainment
Properties Trust and its wholly-owned subsidiaries, EPT DownREIT, Inc. and EPT
DownREIT II, Inc. All significant intercompany transactions have been
eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results may
differ significantly from such estimates and assumptions.
RENTAL PROPERTIES
Rental properties are carried at cost less accumulated depreciation. Costs
incurred for the acquisition of the properties are capitalized. Accumulated
depreciation is computed over the estimated useful lives of the assets, which
generally are estimated to be 40 years for buildings and improvements.
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 its
estimated useful life.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company would record impairment losses on long-lived assets
if events and circumstances indicate that the carrying value of an asset might
not be fully recoverable. In such an event, the undiscounted cash flows
estimated to be generated by those assets are compared to the carrying amounts
of those assets and if less, the Company will recognize an impairment loss in
the amount by which the carrying amount exceeds fair value. The Company
believes that no material impairment exists at December 31, 2000.
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.
23
26
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
All leases contain provisions for periodic escalation in base rent (base rent
escalation). In addition, tenants are subject to additional rents if gross
revenues of the properties exceed certain thresholds defined in the lease
agreements (percentage rents). Base rents are recognized on a straight-line
basis over the term of the lease, and the base rent escalation are recognized
when earned. Percentage rents are recognized at the time when specific
triggering events occur as provided by the lease agreements.
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
95% 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.
Accordingly, no provision has been made for income taxes.
Earnings and profits, which will determine the taxability of distributions to
shareholders, will 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.
SHARE BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee Share options rather than the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
and Disclosure for Stock Based Compensation." Under APB 25, because the exercise
price of the Company's employee share options equals the market price of the
underlying shares at the date of grant, no compensation expense is recognized.
CONCENTRATION OF RISK
American Multi-Cinema, Inc. (AMC) is the lessee of a substantial portion (65%)
of the megaplex theatre rental properties held by the Company at December 31,
2000 as a result of a series of sale leaseback transactions pertaining to a
number of AMC megaplex theatres. A substantial portion (approximately 67%) of
the Company's revenues, and its ability to make distributions to its
shareholders, will depend on rental payments by AMC under the leases, or its
parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC's obligations
under the leases. AMC Entertainment, Inc. is a publicly held company (AMEX:AEN)
and accordingly, their financial information is publicly available.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted on January 1, 2001. Management has stated that the
adoption of the new statement has not had a significant effect on earnings or
the financial position of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company to estimate the
fair value of each class of financial instrument presented as of December 31,
2000 and 1999.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and cash equivalents: The carrying amount of cash and cash equivalents
approximates fair value due to the short term maturities of these financial
instruments.
Long term debt: The fair value of long-term debt at December 31, 2000 and
1999, which is estimated as the present value of future cash flows,
discounted at market interest rates of debt instruments with similar terms
and remaining maturities, approximates its carrying value.
24
27
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
CASH EQUIVALENTS
Cash equivalents include demand deposits and shares of a money market mutual
fund for which cost approximates market value.
3. RENTAL PROPERTIES
The following table summarizes the carrying amounts of rental properties as of
December 31, 2000, 1999 and 1998 (in thousands);
2000 1999 1998
--------- --------- ---------
Buildings and improvements $ 400,183 $ 396,779 $ 368,429
Land 83,874 84,432 77,553
--------- --------- ---------
484,057 481,211 445,982
Accumulated depreciation (23,520) (14,805) (7,634)
--------- --------- ---------
Total $ 460,537 $ 466,406 $ 438,348
========= ========= =========
Depreciation expense on rental properties was $10.2 million, $9.4 million and
$7.0 for the years ended December 31, 2000, 1999 and 1998, respectively.
4. REAL ESTATE JOINT VENTURES
On May 11, 2000, the Company completed the formation of a joint venture with
Atlantic of Hamburg, Germany ("Atlantic"), whereby the Company contributed the
AMC Cantera theatre with a carrying value of $33.5 million in exchange for cash
proceeds from mortgage financing of $17.85 million and a 100% interest in the
venture. The Company subsequently sold to Atlantic an 8% initial interest in
exchange for $1.4 million in cash. It is expected that Atlantic will acquire up
to an additional 72% interest in the joint venture by selling securities to
investors, with the proceeds of those sales to be contributed to the venture and
then paid to the Company in reduction of its interest. The Company accounts for
its investment in the real estate joint venture under the equity method of
accounting as it's majority ownership is deemed to be temporary. The joint
venture is structured as a limited partnership (LP).
On June 30, 1999, the Company finalized a joint venture with Excel Legacy Corp.
(Amex: XLG), whereby the Company contributed certain undeveloped land parcels
with a carrying value of $8.7 million in exchange for a 50% interest in the real
estate joint venture, comprised of the undeveloped land parcels and the
Westminster AMC 24 screen theatre in Westminster, Colorado. The joint venture
intends to develop the properties as an entertainment-themed retail center. The
Company accounts for its investment in the real estate joint venture under the
equity method of accounting. The joint venture is structured as a limited
liability company (LLC).
5. OPERATING LEASES
The Company's rental properties are leased under operating leases with
expiration dates ranging from 13 to 20 years. Future minimum rentals on
non-cancelable tenant leases at December 31, 2000 are as follows (in thousands):
2001 $55,958
2002 55,697
2003 55,697
25
28
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
2004 55,697
2005 56,556
Thereafter 520,433
--------
$800,038
========
6. LONG TERM DEBT
Long term debt at December 31 consists of the following (in thousands):
2000 1999
-------- --------
Mortgage note payable, 6.77%, due July 11, 2008 $102,262 $103,433
Mortgage note payable, 8.18%, due February 1, 2005 $ 19,981 --
Revolving line of credit, Libor plus 275 basis points
(9.50% at December 31, 2000), due March 2, 2001 119,000 132,000
Mortgage note payable, 7.00%, due December 28, 2001 3,304 3,304
-------- --------
Total $244,547 $238,737
======== ========
The Company's mortgage note payable due July 11, 2008 is collateralized by eight
megaplex theatre properties, which had a net book value of approximately $154.5
million at December 31, 2000.
The Company's mortgage note payable due February 1, 2005 is collateralized by
three megaplex theatre properties, which had a net book value of approximately
$42.4 million at December 31, 2000.
The Company's mortgage note payable due December 28, 2001 is collateralized by
three undeveloped land parcels, which had a net book value of approximately $4.9
million at December 31, 2000.
The Company's revolving line of credit provides for borrowing up to $127
million. Amounts available under this line of credit at December 31, 2000
totaled $8 million. Payments due on long term debt subsequent to December 31,
2000 are as follows (in thousands):
2001 $123,843
2002 1,651
2003 1,773
2004 1,879
2005 20,542
Thereafter 94,859
--------
Total $244,547
========
7. SHARE INCENTIVE PLAN
The Company maintains a Share Incentive Plan (the Plan) under which options to
purchase up to 1,500,000 of the Company's common Shares, subject to adjustment
in the event of certain corporate events, may be granted. These options provide
the right to purchase Shares at a price not less than the fair
26
29
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
market value of the Shares at the date of grant. The options may be granted for
any reasonable term, not to exceed 10 years.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for the
periods ended December 31, 2000, 1999 and 1998, respectively: risk-free interest
rate of 5.0%, 5.0% and 4.7%, dividend yield of 8%, volatility factors of the
expected market price of the Company's common Shares of 0.35, 0.18 and 0.37 and
an expected life of the options of eight years.
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
pro forma information for each of the years ended December 31, 2000, 1999 and
1998 is as follows (in thousands except for earnings per Share information):
2000 1999 1998
---- ---- ----
Net income:
As reported $24,172 $23,213 $19,238
Pro forma 24,041 23,174 19,231
Basic earnings per Share:
As reported $1.63 $1.60 $1.39
Pro forma 1.63 1.59 1.39
A summary of the Company's stock option activity and related information is as
follows:
WEIGHTED
AVERAGE
NUMBER OF OPTIONS PRICE EXERCISE
SHARES PER SHARE PRICE EXERCISABLE
--------- ------------- --------- -----------
Outstanding at December 31, 1997 90,000 $20.00 $20.00 --
Exercised -- $-- $ --
Granted 135,999 $14.81-$19.50 $17.97
Canceled/Expired (25,000) $19.50 $19.50
-------
Outstanding at December 31, 1998 200,999 $14.81-$20.00 $18.69 42,000
Exercised -- $-- $ --
Granted 9,999 $19.12 $19.12
Canceled/Expired -- $-- $ --
-------
Outstanding at December 31, 1999 210,998 $14.81-$20.00 $18.71 84,199
Exercised -- $-- $ --
Granted 240,000 $14.13 $14.13
Canceled/Expired 43,000 $19.50-$20.00 $19.97
-------
Outstanding at December 31, 2000 407,998 $14.13-$20.00 $15.88 101,198
27
30
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
The following table summarizes outstanding and exercisable options at December
31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE OUTSTANDING PRICE
--------------------------------------------------------------- ----------------------------------------
$14.13 240,000 $14.13 -- --
$14.81 30,000 $14.81 12,000 $14.81
$18.19 50,000 $18.19 20,000 $18.19
$19.12 9,999 $19.12 9,999 $19.12
$19.31 9,999 $19.31 9,999 $19.31
$19.50 18,000 $19.50 7,200 $19.50
$20.00 50,000 $20.00 42,000 $20.00
During 2000 and 1999, the Company issued 20,694 and 18,044, respectively
restricted Shares for bonus compensation to executives and other employees of
the Company. The holders of these restricted Shares have voting rights and are
eligible to receive dividends from the date of grant. These shares vest in
various increments over a period of three years from the date of grant. The
Company records compensation expense pertaining to these restricted Shares
ratably over the period of vesting. Compensation expense related to the
restricted shares recorded during 2000 and 1999 amounted to $179,750 and
$238,286 respectively.
8. RELATED PARTIES
In 2000, the Company loaned an aggregate of $3,525,000 to executives within the
Company. The loans were made in order for the executives to purchase shares of
the Company's stock 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
bear interest at 6.24% and are due on January 1, 2011. The Company has adopted a
Loan Forgiveness Program, under which the Compensation Committee 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.
9. EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings
per Share for the years ended December 31, 2000, 1999, and 1998 (dollars in
thousands except Share information):
2000 1999 1998
---- ---- ----
Numerator for basic and diluted earnings per Share -
net income available to common shareholders $24,172 $23,213 $19,238
======= ======= =======
28
31
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
Denominator:
Denominator for basic earnings per Share --
weighted-average Shares 14,786,263 14,515,619 13,802,467
Effect of dilutive securities:
Employee Share options -- -- 30,000
Non-vested Share grants 24,000 36,000 48,000
---------- ---------- ----------
Dilutive potential common Shares 24,000 36,000 78,000
---------- ---------- ----------
Denominator for diluted earnings per Share --
adjusted weighted-average Shares 14,810,263 14,551,619 13,880,467
========== ========== ==========
Basic and diluted net income per Share $1.63 $1.60 $1.39
===== ===== =====
10. DERIVATIVES
In 1998, the Company entered into a forward contract in connection with a
long-term debt agreement due July 2008 to essentially fix the base rate of
interest on a notional amount of $105,000,000. The forward contract settled on
June 29, 1998, the closing date of the long-term debt issuance, and the Company
recorded a loss of $1,442,000. This loss is being amortized as an increase to
interest expense over the term of the long-term debt and will result in an
effective interest rate of 6.84%.
11. SUBSEQUENT EVENTS
In February 14, 2001, the Company completed a $125 million five year, fixed rate
secured financing which is collateralized by nine properties. Proceeds from the
financing were used primarily to repay borrowings of $119 million under the Bank
Credit Facility.
12. QUARTERLY RESULTS (unaudited)
2000 Quarterly Consolidated Statements of Income
(In thousands except per Share data)
3/31/00 6/30/00 9/30/00 12/31/00
------- ------- ------- --------
Rental revenue $13,700 $13,429 $13,084 $13,074
Income from joint venture 176 750 576 602
------- ------- ------- -------
Total revenue 13,876 14,179 13,660 13,676
General and administrative expense 494 495 393 468
Depreciation and amortization 2,696 2,619 2,571 2,574
------- ------- ------- -------
Income from operations 10,686 11,065 10,696 10,634
Interest expense 4,438 4,619 4,840 5,012
------- ------- ------- -------
Net income $ 6,248 $ 6,446 $ 5,856 $ 5,622
======= ======= ======= =======
Basic net income per common Share $ 0.42 $ 0.43 $ 0.40 $ 0.38
======= ======= ======= =======
Diluted net income per common Share $ 0.42 $ 0.43 $ 0.40 $ 0.38
======= ======= ======= =======
29
32
Entertainment Properties Trust
Notes to Consolidated Financial Statements (continued)
1999 Quarterly Consolidated Statements of Income
(Dollars in thousands except per Share data)
3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- -------
Rental revenue $11,497 $12,006 $12,325 $12,491
Income from joint venture -- -- 177 156
------- ------- ------- -------
Total revenue 11,497 12,006 12,502 12,647
General and administrative expense 582 611 520 466
Depreciation and amortization 2,325 2,447 2,524 2,686
------- ------- ------- -------
Income from operations 8,590 8,948 9,458 9,495
Interest expense 3,152 3,431 3,270 3,425
------- ------- ------- -------
Net income $ 5,438 $ 5,517 $ 6,188 $ 6,070
======= ======= ======= =======
Basic net income per common Share $ 0.39 $ 0.39 $ 0.41 $ 0.41
======= ======= ======= =======
Diluted net income per common Share $ 0.39 $ 0.39 $ 0.41 $ 0.40
======= ======= ======= =======
30
33
Entertainment Properties Trust
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2000
Initial Cost to Costs Capitalized Gross Amount at Which
Company Subsequent to Carried at Close of Period
------------------ Acquisition ----------------------------
Buildings ---------------------- Buildings
and Carrying and
Description Market Encumbrance Land Improvements Improvements Costs Land Improvements Total
----------- ------ ----------- ---- ------------ ------------- ----- ---- ------------ -----
Grand 24 Dallas, TX $ 11,688 $ 3,060 $ 15,540 $ 3,060 $ 15,281 $ 18,341
Mission Valley 20 San Diego, CA 10,215 16,300 16,028 16,028
Promenade 16 Los Angeles, CA 17,924 6,021 22,479 6,021 22,104 28,125
Ontario Mills 30 Los Angeles, CA 15,913 5,521 19,779 5,521 19,449 24,970
Lennox 24 Columbus, OH 8,084 12,900 12,685 12,685
West Olive 16 St. Louis, MO 11,207 4,985 12,815 4,985 12,601 17,586
Studio 30 Houston, TX 16,608 6,023 20,377 6,023 20,037 26,060
Huebner Oaks 24 San Antonio, TX 10,623 3,006 13,894 3,006 13,662 16,668
First Colony 24 Houston, TX 19,100 19,100 19,100
Oakview 24 Omaha, NE 16,700 16,700 16,700
Leawood 20 Kansas City, MO 3,714 12,086 3,714 12,086 15,800
Gulf Pointe 30 Houston, TX 4,304 21,496 4,304 21,496 25,800
South Barrington 30 Chicago, IL 6,577 27,723 6,577 27,723 34,300
Mesquite 30 Dallas, TX 2,912 20,288 2,912 20,288 23,200
Hampton Town
Center 24 Norfolk, VA 3,822 24,678 3,822 24,678 28,500
Pompano 18 Pompano Beach, FL 7,923 6,376 9,898 2,426 6,376 12,324 18,700
Raleigh Grand 16 Raleigh, NC 4,135 2,919 5,839 2,919 5,839 8,758
Paradise 24 Miami, FL 2,000 13,000 8,519 2,000 21,519 23,519
Pompano Kmart Pompano Beach, FL 600 2,423 600 2,423 3,023
Nickels Restaurant Pompano Beach, FL 200 800 200 800 1,000
Aliso Viejo 20 Los Angeles, CA 8,000 14,000 8,000 14,000 22,000
Bosie Stadium 20 Boise, ID 7,923 16,000 16,000 16,000
Woodridge 18 Chicago, IL 8,922 8,922 8,922
Cary Crossroads 20 Cary, NC 3,352 11,653 3,352 11,653 15,005
Tampa Palms 20 Tampa, FL 6,000 12,809 6,000 12,809 18,809
Palms Promenade San Diego, CA 17,750 17,750 17,750
On The Border Dallas, TX 674 205 879 879
Bennigan's Dallas, TX 565 1,001 163 565 1,164 1,729
Bennigan's Houston, TX 511 750 141 652 750 1,402
Texas Land & Cattle Houston, TX 511 814 193 1,518 1,518
Roadhouse Grill Atlanta, GA 751 117 868 868
In Development Various 3,304 10,467 1,791 12,258 12,258
Acquisition Costs -- -- 312 -- -- -- 312 312
-------- ------- -------- ------- ------ ------- -------- --------
TOTAL $125,547 $92,871 $389,561 $13,510 $2,610 $96,132 $400,183 $496,315
======== ======= ======== ======= ====== ======= ======== ========
Life on Which
Depreciation
in Latest
Accumulated Date of Date Income Statement
Description Depreciation Construction Acquired is Computed
----------- ------------ ------------ -------- ----------------
Grand 24 $ 957 5/95 11/97(1) 40 years
Mission Valley 20 1,003 12/95 11/97(1) 40 years
Promenade 16 1,383 3/96 11/97(1) 40 years
Ontario Mills 30 1,217 12/96 11/97(1) 40 years
Lennox 24 794 12/96 11/97(1) 40 years
West Olive 16 788 4/97 11/97(1) 40 years
Studio 30 1,253 5/97 11/97(1) 40 years
Huebner Oaks 24 855 6/97 11/97(1) 40 years
First Colony 24 1,476 12/97 11/97 40 years
Oakview 24 1,287 2/98 11/97 40 years
Leawood 20 932 12/97 11/97 40 years
Gulf Pointe 30 1,568 1/98 2/98 40 years
South Barrington 30 1,964 3/98 3/98 40 years
Mesquite 30 1,353 4/98 4/98 40 years
Hampton Town
Center 24 1,543 6/98 6/98 40 years
Pompano 18 729 8/98 8/98 40 years
Raleigh Grand 16 353 5/98 8/98 40 years
Paradise 24 978 11/98 11/98 40 years
Pompano Kmart 122 6/77 11/98 40 years
Nickels Restaurant 40 9/98 11/98 40 years
Aliso Viejo 20 700 4/98 12/98 40 years
Bosie Stadium 20 800 12/97 12/98 40 years
Woodridge 18 334 3/99 6/99 40 years
Cary Crossroads 20 291 11/99 6/99 40 years
Tampa Palms 20 346 11/99 6/99 40 years
Palms Promenade 407 11/99 6/99 40 years
On The Border 1/99 11/97
Bennigan's 7 5/00 11/97 10 years
Bennigan's 14 5/00 11/97 10 years
Texas Land & Cattle 7/00 11/97
Roadhouse Grill 8/00 3/99
In Development
Acquisition Costs 28 Various Various Various
-------
TOTAL $23,520
=======
(1) Properties initially acquired in November 1997 were transferred to wholly
owned subsidiary in June 1998 at net book value.
RECONCILIATION:
Real
Estate
---------
Balance at beginning of the period $ 495,745
Additions during the period $32,650
Improvements 2,617
Other 303 35,570
------
Deductions during
period -- transfer of
property to joint venture 35,000
Balance at Close of period $ 496,315
=========
31
34
Entertainment Properties Trust
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1999
Initial Cost to Costs Capitalized Gross Amount at Which
Company Subsequent to Carried at Close of Period
------------------ Acquisition ----------------------------
Buildings ---------------------- Buildings
and Carrying and
Description Market Encumbrance Land Improvements Improvements Costs Land Improvements Total
----------- ------ ----------- ---- ------------ ------------- ----- ---- ------------ -----
Grand 24 Dallas, TX $ 11,822 $ 3,060 $15,540 $3,060 $15,281 $18,341
Mission Valley 20 San Diego, CA 10,332 16,300 16,028 16,028
Promenade 16 Los Angeles, CA 18,129 6,021 22,479 6,021 22,104 28,125
Ontario Mills 30 Los Angeles, CA 16,096 5,521 19,779 5,521 19,449 24,970
Lennox 24 Columbus, OH 8,176 12,900 12,685 12,685
West Olive 16 St. Louis, MO 11,336 4,985 12,815 4,985 12,601 17,586
Studio 30 Houston, TX 16,798 6,023 20,377 6,023 20,037 26,060
Huebner Oaks 24 San Antonio, TX 10,744 3,006 13,894 3,006 13,662 16,668
First Colony 24 Houston, TX 19,100 19,100 19,100
Oakview 24 Omaha, NE 16,700 16,700 16,700
Leawood 20 Kansas City, MO 3,714 12,086 3,714 12,086 15,800
Gulf Pointe 30 Houston, TX 4,304 21,496 4,304 21,496 25,800
South Barrington 30 Chicago, IL 6,577 27,723 6,577 27,723 34,300
Cantera 30 Chicago, IL 7,513 27,487 7,513 27,487 35,000
Mesquite 30 Dallas, TX 2,912 20,288 2,912 20,288 23,200
Hampton Town
Center 24 Norfolk, VA 3,822 24,678 3,822 24,678 28,500
Pompano 18 Pompano Beach, 6,376 9,898 2,426 6,376 12,324 18,700
Raleigh Grand 16 Raleigh, NC 2,919 5,839 2,919 5,839 8,758
Paradise 24 Miami, FL 2,000 13,000 8,519 2,000 21,519 23,519
Pompano Kmart Pompano Beach, 600 2,423 600 2,423 3,023
Nickels Restaurant Pompano Beach, FL 200 800 200 800 1,000
Aliso Viejo 20 Los Angeles, CA 8,000 14,000 8,000 14,000 22,000
Bosie Stadium 20 Boise, ID 16,000 16,000 16,000
Woodridge 18 Chicago, IL 8,922 8,922 8,922
Tampa Palms 20 Tampa, FL 6,000 12,809 6,000 12,809 18,809
On The Border Dallas, TX 674 205 879 879
In Development Various 3,304 11,278 1,022 12,300 12,300
Acquisition Costs -- -- 738 -- -- -- 738 738
-------- ------- -------- ------- ------ ------- -------- --------
TOTAL $106,737 $95,505 $388,071 $10,945 $1,227 $96,732 $396,779 $493,511
======== ======= ======== ======= ====== ======= ======== ========
Life on Which
Depreciation
in Latest
Accumulated Date of Date Income Statement
Description Depreciation Construction Acquired is Computed
----------- ------------ ------------ -------- ----------------
Grand 24 $ 832 5/95 11/97(1) 40 years
Mission Valley 20 873 12/95 11/97(1) 40 years
Promenade 16 1,203 3/96 11/97(1) 40 years
Ontario Mills 30 1,059 12/96 11/97(1) 40 years
Lennox 24 691 12/96 11/97(1) 40 years
West Olive 16 686 4/97 11/97(1) 40 years
Studio 30 1,091 5/97 11/97(1) 40 years
Huebner Oaks 24 744 6/97 11/97(1) 40 years
First Colony 24 995 12/97 11/97 40 years
Oakview 24 870 2/98 11/97 40 years
Leawood 20 629 12/97 11/97 40 years
Gulf Pointe 30 1,030 1/98 2/98 40 years
South Barrington 30 1,271 3/98 3/98 40 years
Cantera 30 1,202 3/98 3/98 40 years
Mesquite 30 845 4/98 4/98 40 years
Hampton Town
Center 24 925 6/98 6/98 40 years
Pompano 18 308 8/98 8/98 40 years
Raleigh Grand 16 146 5/98 8/98 40 years
Paradise 24 440 11/98 11/98 40 years
Pompano Kmart 61 6/77 11/98 40 years
Nickels Restaurant 20 9/98 11/98 40 years
Aliso Viejo 20 350 4/98 12/98 40 years
Bosie Stadium 20 400 12/97 12/98 40 years
Woodridge 18 111 3/99 6/99 40 years
Tampa Palms 20 27 11/99 6/99 40 years
On The Border 1/99 11/97
In Development
Acquisition Costs 231 Various Various Various
-------
TOTAL $14,805
=======
(1) Properties initially acquired in November 1997 were transferred to wholly
owned subsidiary in June 1998 at net book value.
RECONCILIATION:
Real
Estate
---------
Balance at beginning of the period $ 463,631
Additions during the period $31,753
Improvements 8,519
Other 960 41,232
-------
Deductions during period
transfer of property to joint venture 9,117
transfer of property to subsidiary (1) 2,235
Balance at Close of period $ 493,511
=========
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held on [MAY 23], 2001 (the "Proxy Statement"), contains under the
captions "Election of Trustee", "Officers", and "Section 16(a) Beneficial
Ownership Reporting Compliance" the information required by Item 10 of Form
10-K, which information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The Proxy Statement contains under the captions "Election of Trustee --
Compensation of Trustees", "Executive Compensation", "Compensation Committee"
and "Company Performance" the information required by Item 11 of Form 10-K,
which information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Proxy Statement contains under the caption "Share Ownership" the information
required by Item 12 of 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. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits, Financial Statements and Financial Statement Schedules:
Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Income for the three years ended December
31, 2000, 1999 and 1998.
Consolidated Statements of Changes in Shareholders' Equity for the
three years ended December 31, 2000,1999 and 1998.
Consolidated Statements of Cash Flows for the three years ended
December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K: none
33
36
(c) Exhibits
10.18* Mezzanine Loan Agreement dated February 14, 2001, between Megaplex
Holdings, Inc. and istar Funding, LLC
10.19* Loan Agreement dated February 14, 2001, between Megaplex Nine,
Inc. and Bear Stearns Funding, Inc.
21* Subsidiaries of the Company
23* Consent of Independent Auditors
* Previously filed.
(d) Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
No other schedules meet the requirement for disclosure.
34
37
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: August 22, 2001 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/ Peter C. Brown August 22, 2001
----------------------------------------------------------------
Peter C. Brown, Chairman of the Board
/s/ David M. Brain August 22, 2001
---------------------------------------------------------------
David M. Brain, Chief Executive Officer and Trustee
/s/ Robert J. Druten August 22, 2001
----------------------------------------------------------------
Robert J. Druten, Trustee
/s/ Scott H. Ward August 22, 2001
-----------------------------------------------------------------
Scott H. Ward, Trustee
/s/ Danley K. Sheldon August 22, 2001
--------------------------------------------------------------
Danley K. Sheldon, Trustee
38
Entertainment Properties Trust
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
INDEX OF EXHIBITS
Exhibit No. Description
----------- -----------
10.18* Mezzanine Loan Agreement dated February 14, 2001,
between Megaplex Holdings, Inc. and istar Funding, LLC
10.19* Loan Agreement dated February 14, 2001, between
Megaplex Nine, Inc. and Bear Stearns Funding, Inc.
21* Subsidiaries of the Company
23* Consent of Independent Auditors
* Previously filed.
36