10-Q 1 c65962e10-q.txt FORM 10-Q FOR QUARTER ENDED 9-30-2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 COMMISSION FILE NUMBER 1-13561 ENTERTAINMENT PROPERTIES TRUST (Exact name of registrant as specified in its charter) MARYLAND 43-1790877 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 30 PERSHING ROAD, SUITE 201 KANSAS CITY, MISSOURI 64108 (Address of principal executive office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (816) 472-1700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X --- 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 November 1, 2001, there were 14,798,921 Common Shares of Beneficial Interest outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Entertainment Properties Trust Consolidated Balance Sheets (Dollars in thousands)
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------- -------------------- ASSETS (UNAUDITED) Rental properties, net $ 471,351 $ 460,537 Land held for development 10,710 12,258 Investments in real estate joint ventures 27,698 27,391 Cash and cash equivalents 10,066 5,948 Restricted cash equivalents 6,495 - Notes receivable - 434 Other assets 9,593 6,966 ------------------- -------------------- Total assets $ 535,913 $ 513,534 =================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 1,177 $ 1,499 Dividend payable 6,659 6,479 Unearned rents - 390 Long-term debt 269,505 244,547 ------------------- -------------------- Total liabilities 277,341 252,915 Commitments and contingencies - - Shareholders' equity Common Shares, $.01 par value; 50,000,000 shares authorized; 15,271,121 and 15,195,926 shares issued at September 30, 2001 and December 31, 2000, respectively 153 152 Additional paid-in-capital 279,592 278,574 Treasury Stock at cost: 472,200 shares (6,533) (6,533) Loans to shareholders (3,525) (3,525) Non-vested shares (1,160) (575) Distributions in excess of net income (9,955) (7,474) ------------------- -------------------- Shareholders' equity 258,572 260,619 ------------------- -------------------- Total liabilities and shareholders' equity $ 535,913 $ 513,534 =================== ====================
Entertainment Properties Trust Consolidated Statements of Income (Unaudited) (Dollars in thousands except per share data)
Three Months Ended September 30, Nine Months Ended September 30, 2001 2000 2001 2000 ------------- -------------- ---------------- ----------------- Rental revenue $ 13,651 $ 13,084 $ 40,462 $ 40,213 General and administrative expense 493 393 2,067 1,382 Depreciation and amortization 2,574 2,571 7,722 7,886 ------------- -------------- ---------------- ----------------- Income from operations 10,584 10,120 30,673 30,945 Interest expense, net 5,102 4,840 14,949 13,896 Equity in income from joint ventures 572 576 1,707 1,501 ------------- -------------- ---------------- ----------------- Net income $ 6,054 $ 5,856 $ 17,431 $ 18,550 ============= ============== ================ ================= Net income per common share Basic $ 0.41 $ 0.40 $ 1.18 $ 1.25 Diluted $ 0.41 $ 0.40 $ 1.18 $ 1.25 Shares used for computation (in thousands): Basic 14,742 14,692 14,715 14,793 Diluted 14,803 14,728 14,742 14,829 Dividends per common share $ 0.45 $ 0.44 $ 1.35 $ 1.32 ============= ============== ================ =================
Entertainment Properties Trust Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Nine Months Ended September 30, 2001 2000 ----------------- ------------------- OPERATING ACTIVITIES Net income $ 17,431 $ 18,550 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,722 7,886 Compensation pertaining to common shares issued to trustees and employees 54 92 Increase in other assets (2,225) (656) Increase (decrease) in accounts payable and accrued liabilities (285) 1,131 Decrease in unearned rents (390) (150) ----------------- ------------------- Net cash provided by operating activities 22,307 26,853 INVESTING ACTIVITIES Acquisition of rental properties (17,415) (37,027) Net proceeds from contribution of rental properties to joint venture - 14,596 Net proceeds from sale of interest in joint venture 1,445 - Investment in joint venture (1,752) - Acquisition of development properties - (434) Development and capitalized costs (1,136) - ----------------- ------------------- Net cash used in investing activities (18,858) (22,865) FINANCING ACTIVITIES Proceeds from long-term debt facilities 150,000 20,175 Principal payments on long-term debt (123,224) (14,991) Purchase of common stock - (4,405) Proceeds from issuance of common stock 119 - Funding of escrow deposits (6,495) - Distributions to shareholders (19,731) (19,413) ----------------- ------------------- Net cash used in financing activities 669 (18,634) ----------------- ------------------- Net increase (decrease) in cash and cash equivalents 4,118 (14,646) Cash and cash equivalents at beginning of period 5,948 22,265 ----------------- ------------------- Cash and cash equivalents at end of period $ 10,066 $ 7,619 ================= =================== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY Declaration of dividends to common shareholders $ 6,659 $ 6,478 Transfer of land held for development to rental property $ 866 $ - Contribution of rental property in exchange for equity interest in real estate joint ventures $ - $ 18,157 Exchange of development property in connection with acquisition of rental property $ 1,818 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1). ORGANIZATION Entertainment Properties Trust (the "Company") is a Maryland real estate investment trust (REIT) organized on August 29, 1997. The Company was formed to acquire and develop entertainment properties including megaplex theatres and entertainment-themed retail centers. 2). SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The consolidated balance sheet as of December 31, 2000 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. Principles of Consolidation The consolidated financial statements include the accounts of Entertainment Properties Trust and its wholly-owned subsidiaries, EPT DownReit, Inc., EPT DownReit II, Inc, Three Theatres, Inc. and Cantera 30, Inc. All significant inter-company 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). LONG TERM DEBT On February 14, 2001, the Company completed a $125 million debt private placement, secured by nine megaplex theatre properties, the proceeds of which were used primarily to retire borrowings under the $127 million Bank Credit Facility. The debt carries a stated interest rate at September 30, 2001 of 8.26% and matures on February 12, 2006. On May 18, 2001, the Company completed a $50 million term debt facility, secured primarily by first mortgages on four megaplex theatre properties. Additional collateral for the facility includes certain land parcels owned by the Company. As of September 30, 2001, $25 million was outstanding on the facility which carries a variable interest rate of 7.1%. The facility has an initial term of three years with two one-year extensions. Proceeds from the facility will be used for additional real estate acquisitions and general operating purposes. 4). REAL ESTATE JOINT VENTURES 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 partnership. 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 30 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. During 2000 and 2001, the Company sold to Atlantic a total of a 16% interest in the venture in exchange for $2.8 million in cash. It is expected that Atlantic will acquire up to an additional 64% interest in the joint venture by selling securities to German 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. The joint venture is structured as a limited liability company (LLC). 5). PROPERTY ACQUISITIONS During the three-month period ended September 30, 2001, the Company executed its purchase option for the acquisition of ground leased land underlying the 24 screen Oakview, NE megaplex theatre which was originally purchased in 1997. The theatre land acquisition was subsequently completed in October 2001 for an aggregate cost of $5.2 million. 6). 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. 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 and Notes thereto included in this quarterly report on Form 10-Q. The forward-looking statements included in this discussion and elsewhere in this Form 10-Q involve risks and uncertainties, including anticipated financial performance, business prospects, anticipated capital expenditures, industry trends, shareholder returns, performance of leases by tenants and other matters, which reflect management's best judgment based on factors currently known. Actual results and experience could differ materially from the anticipated results and other expectations expressed in the Company's forward-looking statements as a result of a number of factors including but not limited to those discussed in this Item and in Item I "Business - Risk Factors", in the Company's Annual Report of Form 10-K for the year ended December 31, 2000 incorporated by reference herein. RESULTS OF OPERATIONS THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2000 RENTAL REVENUE - Revenue from property rentals was $13.7 million for the three months ended September 30, 2001 compared to $13.1 million for the three months ended September 30, 2000. The $0.6 million increase resulted from two property acquisitions completed in 2001 ($0.4 million), and from rent increases on existing properties ($0.2 million). GENERAL AND ADMINISTRATIVE EXPENSE - The Company's general and administrative expenses totaled $0.5 million for the three months ended September 30, 2001 compared to $0.4 million for the same period in 2000. The increase was attributed to increased business development expenses compared to the prior year and increases in property tax accruals. NET INTEREST EXPENSE - The Company's net interest expense increased to $5.1 million for the three months ended September 30, 2001 from $4.8 million for the three months ended September 30, 2000. The $0.3 million increase in net interest expense resulted from an increase in long-term debt related to financings of property acquisitions made during fiscal 2001. NET INCOME - Net income for the three months ended September 30, 2001 totaled $6.1 million as compared to $5.9 million for the three months ended September 30, 2000. The increase in net income was resulted from increased rental revenue of $0.6 offset by increases in general and administrative expense ($0.1 million) and the increase in net interest expense ($0.3 million). NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000 RENTAL REVENUE - Rental revenues totaled $40.5 million for the nine months ended September 30, 2001 compared to $40.2 million for the nine months ended September 30, 2000. Increases in the current period of approximately $1.7 million from rent increases, property acquisitions and additional pad site lease revenue were partially offset by the effect of the contribution of the Cantera 30 property to the Atlantic-EPR joint venture in May 2000 ($1.5 million), which is accounted for under the equity method of accounting whereby the Company's proportional share of net income is recognized as income rather than the actual rental revenue of the underlying properties. GENERAL AND ADMINISTRATIVE EXPENSE - General and administrative expense totaled $2.1 million and $1.4 million for the nine months ended September 30, 2001 and 2000. The increase of $0.7 million was due primarily to shareholder related expenses incurred in a proxy contest described in Part II - Item 4 "Submission of Matters to a vote of Security Holders". DEPRECIATION AND AMORTIZATION EXPENSE - Depreciation and amortization expense decreased to $7.7 million for the nine months ended September 30, 2001 compared to $7.9 million for the nine months ended September 30, 2000. The $0.2 million decrease in depreciation and amortization was primarily due to the effect of the contribution of the Cantera 30 property to the Atlantic-EPR joint venture, which is accounted for under the equity method of accounting whereby the Company's proportional share of property depreciation from the joint venture is not included as a direct expense to the Company. NET INTEREST EXPENSE - Net interest expense totaled $14.9 million for the nine months ended September 30, 2001 compared to net interest expense of $13.9 million for the nine months ended September 30, 2000. The increase of $1.0 million in interest expense resulted from the increase in long-term debt incurred as a result of property acquisitions made during 2001 and fees and expenses associated with the Companies new long-term debt facilities that are amortized through interest expense over the life of the debt. EQUITY IN INCOME FROM JOINT VENTURES - Joint venture income for the nine months ended September 30, 2001 totaled $1.7 million as compared to $1.5 million for the nine months ended September 30, 2000. The $0.2 million increase in joint venture income was the result of the full nine months of joint venture operations during the current year compared to 5 months of operations in the same period last year. NET INCOME - Net income for the nine months ended September 30, 2001 totaled $17.4 million as compared to $18.6 million for the nine months ended September 30, 2000. The decline of $1.2 million was primarily the result of higher general and administrative costs ($0.7) and the increase in net interest expense ($1.0 million). LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001, the Company had $10.1 million in cash and cash equivalents, $6.5 million in restricted cash escrows available to service debt under the Company's $125 million secured mortgage debt issue completed in February, 2001, and secured mortgage indebtedness of approximately $270 million. As of September 30, 2001, the aggregate fixed rate mortgage indebtedness of $245 million had a weighted average coupon rate of 7.6% and the variable rate mortgage indebtedness of $25 million had a weighted average coupon rate of 7.1%. On February 14, 2001, the Company completed a $125 million debt private placement, secured by nine megaplex theatre properties, the proceeds of which were used primarily to retire borrowings under the $127 million Bank Credit Facility. The Company anticipates that its cash from operations will provide adequate liquidity to conduct its operations, fund administrative and operating costs and debt service requirements 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 pursuant to the Company's investment objectives and policies to maximize both current income and long-term growth in income. As acquisition opportunities are presented, 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 the December 31, 2000 annual report on Form 10-K for a discussion of the Company's capitalization strategies and capital requirements for future growth. 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 tables summarize the Company's FFO for the three and nine month periods ended September 30, 2001 and September 30, 2000 (in thousands):
Three months ended September 30, Nine months ended September 30, 2001 2000 2001 2000 ----------- ------------- ------------ ------------- Net income $6,054 $5,856 $17,431 $18,550 Real estate depreciation including depreciation from unconsolidated joint ventures 2,705 2,709 8,113 7,980 ----------- ------------- ------------ ------------- Funds From Operations $8,759 $8,565 $25,544 $26,530 =========== ============= ============ =============
FORWARD LOOKING INFORMATION CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION WITH THE EXCEPTION OF HISTORICAL INFORMATION, THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND IDENTIFIED BY SUCH WORDS AS "WILL BE," "INTEND," "CONTINUE," "BELIEVE," "MAY," "EXPECT," "HOPE," "ANTICIPATE," "GOAL," "FORECAST," OR OTHER COMPARABLE TERMS. THE COMPANY'S ACTUAL FINANCIAL CONDITION, RESULTS OF OPERATIONS OR BUSINESS MAY VARY MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS AND INVOLVE VARIOUS RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THOSE DISCUSSED IN ITEM I-"BUSINESS - RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks, primarily relating to potential losses due to changes in interest rates on long-term debt. 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. 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 A. Exhibits. None B. 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: November 9, 2001 By /s/ Fred L. Kennon --------------------- Fred L. Kennon, Vice President - Chief Financial Officer Treasurer and Controller