-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SaLasigcnjXcz454WltvIORr/S0sT7MkjfQai/o63wltXhocMwWz8Uns7Qr6HXpB v04xlcqxj+DNc2bwamSQwg== 0000950124-99-003379.txt : 19990518 0000950124-99-003379.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950124-99-003379 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERTAINMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0001045450 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 431790877 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13561 FILM NUMBER: 99627444 BUSINESS ADDRESS: STREET 1: ONE KANSAS CITY PLACE STREET 2: 1200 MAIN STREET SUITE 3250 CITY: KANSAS CITY STATE: MO ZIP: 64105 BUSINESS PHONE: 8164721700 MAIL ADDRESS: STREET 1: ONE KANSAS CITY PLACE STREET 2: 1200 MAIN STREET SUITE 3250 CITY: KANSAS CITY STATE: MO ZIP: 64105 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 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) ONE KANSAS CITY PLACE 1200 MAIN STREET, SUITE 3250, KANSAS CITY, MISSOURI 64105 (Address of principal executive office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (816) 472-1700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At April 30, 1999, there were 13,867,412 Common Shares of Beneficial Interest outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENTERTAINMENT PROPERTIES TRUST Consolidated Balance Sheets (Dollars in thousands)
MARCH 31, 1999 DECEMBER 31, 1998 ------------- ----------------- (UNAUDITED) ASSETS Rental properties, net $ 443,702 $ 438,348 Land held for development 19,220 17,649 Cash and cash equivalents 4,333 2,341 Other assets 5,555 6,033 ========= ========= Total assets $ 472,810 $ 464,371 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 1,450 $ 1,066 Dividend payable 5,822 5,545 Unearned rents 3,561 3,161 Long-term debt 213,739 206,037 --------- --------- Total liabilities 224,572 215,809 Commitments and Contingencies -- -- Shareholders' equity Preferred Shares, $.01 par value; 5,000,000 shares Authorized; no shares issued or outstanding -- -- Common Shares, $.01 par value; 50,000,000 shares Authorized; 13,861,991 and 13,861,964 shares issued and outstanding at March 31, 1999 and December 31, 1998, 139 139 respectively Additional paid-in-capital 255,756 255,756 Loans to officers (2,400) (2,400) Non-vested shares (880) (940) Distributions in excess of net income (4,377) (3,993) --------- --------- Shareholders' equity 248,238 248,562 ========= ========= Total liabilities and shareholders' equity $ 472,810 $ 464,371 ========= =========
3 ENTERTAINMENT PROPERTIES TRUST Consolidated Statements of Income (Unaudited) (Dollars in thousands except per share data)
Three Months Ended March 31, 1999 1998 --------------------- ------------------- Rental revenue $ 11,497 $ 6,293 General and administrative expense 582 497 Depreciation and amortization 2,325 1,356 -------- -------- Income from operations 8,590 4,440 Interest expense (income) 3,152 (140) -------- -------- Net income $ 5,438 $ 4,580 ======== ======== Basic and diluted net income per common share $ 0.39 $ 0.33 ======== ======== Shares used for computation (in thousands): Basic 13,814 13,800 Diluted 13,892 13,860
4 ENTERTAINMENT PROPERTIES TRUST Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Three Months Ended March 31, 1999 1998 ------------- ------------ OPERATING ACTIVITIES Net income $ 5,438 $ 4,580 Adjustments to reconcile net income to net cash Provided by operating activities Depreciation and amortization 2,325 1,356 (Increase) decrease in other assets 461 (1,952) (Decrease) increase in accounts payable and accrued liabilities 383 (1,874) Decrease in other liabilities -- (1,368) Increase in unearned rent 400 528 -------- -------- Net cash provided by operating activities 9,007 1,270 INVESTING ACTIVITIES Acquisition of rental properties (7,601) (95,408) Acquisition of development properties (1,571) (3,773) -------- -------- Net cash used in investing activities (9,172) (99,181) FINANCING ACTIVITIES Proceeds from long-term debt 8,000 57,000 Principal payments on long-term debt (298) -- Distributions to shareholders (5,545) (2,495) -------- -------- Net cash provided by financing activities 2,157 54,505 -------- -------- Net increase (decrease) in cash and cash equivalents 1,992 (43,406) Cash and cash equivalents at beginning of period 2,341 45,220 -------- -------- Cash and cash equivalents at end of period $ 4,333 $ 1,814 ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY Declaration of dividend to common shareholders $ 5,822 $ 5,544 ======== ========
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1). ORGANIZATION Entertainment Properties Trust (the "Company") is a Maryland real estate investment trust (REIT) organized on August 29, 1997. The Company was formed to acquire and develop entertainment properties including megaplex theatres and entertainment-themed retail centers. 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 Basis of Presentation The accompanying unaudited consolidated financial statements of Entertainment Properties Trust have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The consolidated balance sheet as of December 31, 1998 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Entertainment Properties Trust annual report on Form 10-K for the year ended December 31, 1998. 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 generally accepted accounting principles 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. 3). COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", effective for fiscal years beginning after December 15, 1998. SFAS No. 130 requires that changes in the amounts of certain items, including gains and losses on certain securities, be shown in the Financial Statements. The Company adopted the provisions of SFAS No. 130 on January 1, 1998. The Company's comprehensive income is equivalent to net income for the three months ended March 31, 1999. 6 4). PROPERTY ACQUISITIONS During the three month period ended March 31, 1999, the Company completed its acquisition of the Muvico Paradise 24 theatre property for an aggregate purchase price of $6.5 million. This property is subject to lease arrangements consistent with the lease terms of the Company's other rental properties. Additionally, during the three month period ended March 31, 1999, the Company acquired certain undeveloped land parcels for an aggregate purchase price of $1.6 million. These parcels are adjacent to a theatre property currently under development. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company included in this quarterly report on Form 10-Q. The forward-looking statements included in this discussion and elsewhere in this Form 10-Q involve risks and uncertainties, including anticipated financial performance, business prospects, industry trends, anticipated capital expenditures, 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. RESULTS OF OPERATIONS The Company's revenues, which consist of property rentals, were $11.5 million for the three months ended March 31, 1999 compared to $6.3 million for the three months ended March 31, 1998. The increase was attributable to (i) the acquisition of nine megaplex theatres subsequent to March 31, 1998; (ii) a full quarter of rent in 1999 for three megaplex theatres acquired in the first quarter of 1998; and (iii) increases in base rent for eleven theatres acquired in 1997. General and administrative expense totaled $0.6 million for the three months ended March 31, 1999 compared to $0.5 million for the three months ended March 31, 1998. The increase was due primarily to increases in personnel costs. Net interest expense totaled $3.2 million for the three months ended March 31, 1999 compared to net interest income of $0.1 million for the three months ended March 31, 1998. The $3.3 million increase in interest expense resulted from the long-term debt incurred in conjunction with the properties acquired subsequent to March 31, 1998. Depreciation and amortization expense was $2.3 million for the three months ended March 31, 1999 compared to $1.4 million for the three months ended March 31, 1998. The increase resulted from the additional property acquisitions made during the past year. Net income for the three months ended March 31, 1999 totaled $5.4 million or $0.39 per Share. For the three months ended March 31, 1998, net income was $4.6 million or $0.33 per Share. 7 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, the Company had $4.3 million in cash and cash equivalents, secured mortgage indebtedness of approximately $108 million, and unsecured indebtedness of $106 million under the Bank Credit Facility. The $214 million aggregate principal amount of mortgage and unsecured indebtedness bears interest at a weighted average rate of 6.88%. As of March 31, 1999, the Company had drawn $106 million under the Bank Credit Facility. The remaining credit availability of $44 million will be utilized to acquire additional entertainment properties and to fund operations, if needed. The Bank Credit Facility contains a number of financial covenants and restrictions, including restrictions on the amount of secured indebtedness that can be obtained by the Company, a restriction on dividends to 90% of FFO (provided that the Company may at all times pay the dividends required to maintain its status as a REIT) and provisions governing the eligibility and value of properties for borrowing base calculations. The Company anticipates that its cash from operations and credit available under the Bank Credit Facility will provide adequate liquidity to conduct its operations, fund administrative and operating costs, interest payments, additional planned property acquisitions and allow distributions to the Company's shareholders in accordance with Internal Revenue Code requirements for qualification as a REIT and to avoid any corporate level federal income tax or excise tax. Future acquisitions will be made subject to the Company's investment objectives and policies to maximize both current income and long-term growth in income. As such acquisition opportunities are presented that would cause the Company to exhaust its available credit under the Bank Credit Facility, 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 and/or reduce borrowings under the Bank Credit Facility, thereby replenishing the available credit for future acquisitions. There can be no assurance these objectives can be achieved. See the annual report on Form 10-K for a discussion of the Companies' capitalization strategies and capital requirements for future growth. The Company's liquidity requirements with respect to future acquisitions may be reduced to the extent the Company uses common Shares as consideration for such purchases. Accordingly, the Company plans to file a registration statement on Form S-4 with the Securities and Exchange Commission to register Shares for issuance in exchange for the acquisition of additional properties as such opportunities may arise. On February 9, 1999, the Company instituted a dividend reinvestment and direct share purchase plan pursuant to which shareholders may elect to automatically reinvest their dividends by purchasing Shares issued directly by the Company and shareholders and others may purchase Shares for cash directly from the Company. The Company anticipates that additional capital will be obtained through the dividend reinvestment and direct share purchase plan. 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. 8 The following table summarizes the Company's FFO (in thousands except per Share data):
Three months ended March 31, 1999 1998 ---- ---- Net Income $5,438 $4,580 Real estate depreciation 2,248 1,286 ------ ------ FFO $7,686 $5,866 ====== ====== Basic FFO per common Share $ 0.56 $ 0.42 ====== ====== Diluted FFO per common Share $ 0.55 $ 0.42 ====== ======
YEAR 2000 DISCLOSURE The Year 2000 issue concerns the inability of certain systems and devices to properly use or store dates beyond December 31, 1999, resulting in system failures or malfunctions that disrupt normal operations. This issue affects most companies to some degree. The Company believes its own internal operations, information systems and software applications are Year 2000 compliant. The Company's only computer software, other than standard office automation software, is its accounting software. The third party vendor of the Company's accounting software has certified that the system is Year 2000 compliant. The Company did not incur any additional expenditures for its accounting software relating to Year 2000 issues. The Company is in the process of assessing the extent to which it is vulnerable to any failure of its tenants or third-party service providers to remedy their own Year 2000 issues. The Company plans to process information from tenant surveys beginning in 1999 and complete its assessment by mid-1999. The Company's evaluation of these issues has been conducted by its own personnel or by inquiries of tenants and vendors in connection with their servicing operations. The Company's expenditures for assessing Year 2000 issues have not been material. In addition, the Company is not aware of any Year 2000 issues that will require material expenditures by the Company in the future. The Company does not believe the risk posed by Year 2000 related problems at any of the Company's third-party service providers, such as its banks, payroll processor or telecommunications providers, would have a material effect on its operations. Nevertheless, Year 2000 related problems at such third-party service providers could delay the processing of financial transactions and the Company's payroll and could temporarily disrupt the Company's internal and external communications. However, the Company expects such disruptions, should they occur, to be temporary. The Company intends to complete outstanding assessments and continue to monitor Year 2000 issues, and develop contingency plans to the extent deemed necessary. However, based on current information, the Company does not anticipate developing any substantive contingency plans with respect to Year 2000 issues. In addition, the Company currently has no plans to use any independent verification or review of its assessments. While the Company believes it will be Year 2000 ready by December 31, 1999, there can be no assurance the Company will be successful in identifying and assessing all compliance issues. There can be no assurance that systems of other companies on which the Company relies will be Year 2000 compliant on a timely basis and thus no assurance that those companies' systems would not have a material adverse effect on the Company's business or results of operations. 9 FORWARD LOOKING INFORMATION CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND IDENTIFIED BY SUCH WORDS AS "WILL BE," "INTEND," "CONTINUE," "BELIEVE," "MAY," "EXPECT," "HOPE," "ANTICIPATE," "GOAL," "FORECAST," OR OTHER COMPARABLE TERMS. THE COMPANY'S ACTUAL FINANCIAL CONDITION, RESULTS OF OPERATIONS OR BUSINESS MAY VARY MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS AND INVOLVE VARIOUS RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING: - - The Company's dependence on its largest tenant and lease guarantor for a substantial portion of its lease revenues and ability to make distributions to its shareholders - - The Company's continuing ability to diversify its portfolio - - Competition from other entities providing capital to the entertainment industry - - Dependence on key personnel - - Operating risks in the entertainment industry that may affect the operations of the Company's tenants - - Tax risks arising from the Company's continuing ability to qualify as a REIT - - Interest rates and availability of debt financing - - Availability of capital for future expansion - - General real estate investment risks - - Other risk and uncertainties INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS AND ARE ENCOURAGED TO REVIEW THE RISK FACTORS IDENTIFIED IN THE COMPANY'S PROSPECTUS CONTAINED IN ITS REGISTRATION STATEMENT ON FORM S-11 AND FORM S-3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks, primarily relating to potential losses due to changes in interest rates. The Company seeks to mitigate the effects of fluctuations in interest rates by matching the term of new investments with new long-term fixed rate borrowings whenever possible. The Company is subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of such refinancing may not be as favorable as the terms of current indebtedness. The majority of the Company's borrowings are subject to mortgages or contractual agreements which limit the amount of indebtedness the Company may incur. Accordingly, if the Company is unable to raise additional equity or borrow money due to these limitations, the Company's ability to acquire additional properties may be limited. 10 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENTERTAINMENT PROPERTIES TRUST Dated: May 14, 1999 By /s/ David M. Brain ----------------------- David M. Brain, Chief Operating Officer and Chief Financial Officer Dated: May 14, 1999 By /s/ Fred L. Kennon ----------------------- Fred L. Kennon, Vice President - Treasurer and Controller EX-27 2 FINANCIAL DATA SCHEDULE
5 THE FINANCIAL DATA SCHEDULE INFORMATION HAS BEEN EXTRACTED FROM THE REGISTRANTS CONSOLIDATED BALANCE SHEET DATED MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 247 4,086 0 0 0 0 470,700 (7,676) 472,810 0 0 0 0 139 248,159 472,810 0 11,497 0 0 2,907 0 3,152 5,438 0 0 0 0 0 5,438 0.39 0.39
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