FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-119160
857,145 COMMON SHARES
ENTERTAINMENT PROPERTIES TRUST
Entertainment Properties Trust is a self-administered real estate
investment trust formed to invest in entertainment-related properties. Our real
estate portfolio, with over $1 billion in assets, is comprised of 54 megaplex
theatre properties located in twenty states and Ontario, Canada, six
entertainment retail centers located in Westminster, Colorado, New Rochelle, New
York and Ontario, Canada, other specialty properties, and land parcels leased to
restaurant and retail operators adjacent to several of our theatre properties.
Our theatre properties are leased to prominent theatre operators, including
American Multi-Cinema, Inc. ("AMC"), Muvico Entertainment LLC ("Muvico"), Regal
Cinemas ("Regal"), Consolidated Theatres ("Consolidated"), Loews Cineplex
Entertainment ("Loews"), Rave Motion Pictures ("Rave"), AmStar Cinemas LLC
("AmStar"), Wallace Theatres ("Wallace"), Crown Theatres ("Crown") and Southern
Theatres ("Southern").
To preserve our qualification as a real estate investment trust for U.S.
federal income tax purposes and for other purposes, we impose restrictions on
ownership of our common shares. See "Description of Common Shares" and "U.S.
Federal Income Tax Consequences" in this prospectus.
This prospectus relates to the proposed sale from time to time of up to an
aggregate of 857,145 common shares by the selling shareholders named in this
prospectus. The selling shareholders may sell the shares held for their own
account or the shares may be sold by donees, transferees, pledgees, their
beneficiaries or other successors in interest that receive shares from a selling
shareholder as a gift, trust distribution or other non-sale related transfer.
The shares being offered by the selling shareholders were originally issued
to the sellers of five theatre properties in Louisiana that we acquired in 2002
(the properties are sometimes referred to in this prospectus as the Gulf States
Properties, and the sellers of the properties are sometimes referred to as the
Property Sellers). The selling shareholders are owners of interests in the
Property Sellers or members of their immediate family. The shares are being
offered pursuant to a Registration Rights Agreement entered into between us and
the Property Sellers (referred to in this prospectus as the Registration Rights
Agreement).
The selling shareholders may offer and sell shares from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The selling shareholders may sell all or a portion of the shares in market
transactions on the New York Stock Exchange, in privately negotiated
transactions, through the writing of options, in a block trade in which a
broker-dealer will attempt to sell a block of shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction,
through broker-dealers which may act as agents or principals, directly to one or
more purchasers, through agents, or in any combination of the above or by any
other legally available means. The selling shareholders will receive all of the
proceeds from the sale of the shares. We will not receive any proceeds from such
sales. We are paying the expenses of this offering.
Our common shares and 9.50% Series A Cumulative Redeemable Preferred Shares
(referred to in this prospectus as the Series A Preferred Shares) are traded on
the New York Stock Exchange under the ticker symbols EPR and EPR PrA,
respectively. The last reported sales price of our common shares on September
20, 2004 was $38.00 per share.
We have paid regular quarterly dividends to our common and preferred
shareholders. See "About EPR" and "Description of Securities."
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE THE "RISK
FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 6, 2004.
TABLE OF CONTENTS
PAGE
About this Prospectus.................................................. 1
Where You Can Find More Information.................................... 1
Incorporation of Certain Information by Reference...................... 1
Cautionary Statements Concerning Forward-Looking Information........... 2
Risk Factors........................................................... 3
About EPR.............................................................. 10
Properties............................................................. 18
Use of Proceeds........................................................ 20
U.S. Federal Income Tax Consequences................................... 20
Description of Common Shares........................................... 28
Selling Shareholders................................................... 30
Plan of Distribution................................................... 31
Legal Opinions......................................................... 33
Experts .............................................................. 33
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement (No. 333-119160) that
we filed with the Securities and Exchange Commission ("SEC") using a "shelf
registration" process. Under this shelf process, the selling shareholders may
sell the shares described in this prospectus. This prospectus provides you with
a general description of the shares to be sold by the selling shareholders. You
should read this prospectus and the other information described in "Where You
Can Find More Information" and "Incorporation of Certain Information by
Reference" prior to investing.
WHERE YOU CAN FIND MORE INFORMATION
As a public company with securities listed on the New York Stock Exchange
(referred to in this prospectus as the NYSE), Entertainment Properties Trust
("we," "EPR," or the "Company") must comply with the Securities Exchange Act of
1934 ("Exchange Act"). This requires that we file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, proxy statements or other information we file at the SEC's
Public Reference Room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 and at the SEC's regional offices at 233 Broadway, New
York, New York 10279 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. Copies of these
materials may be obtained by mail from the Public Reference Room of the SEC. You
may also access our SEC filings at the SEC's Internet website at www.sec.gov.
You can inspect reports and other information we file at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement which includes this prospectus plus
related exhibits with the SEC under the Securities Act of 1933 (the "Securities
Act"). The registration statement contains additional information about EPR and
the shares. You may view the registration statement and exhibits on file at the
SEC's website. You may also inspect the registration statement and exhibits
without charge at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C.
20549, and you may obtain copies from the SEC at prescribed rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information we later
file with the SEC, modifies or replaces that information.
The documents listed below have been filed by EPR under the Exchange Act
(File No. 1-13561) and are incorporated by reference in this prospectus:
1. EPR's annual report on Form 10-K for the year ended December 31, 2003,
as amended by amendment No. 1 thereto filed on April 15, 2004.
2. EPR's definitive proxy statement on Schedule 14A filed on April 8,
2004, except as otherwise stated with respect to information not
deemed filed or incorporated by reference.
3. EPR's quarterly reports on Form 10-Q for the quarters ended March 31
and June 30, 2004.
4. EPR's current report on Form 8-K filed on November 12, 2003 and
amendment No. 1 thereto filed on January 12, 2004; EPR's current
report on Form 8-K filed on March 15, 2004 and amendment No. 1 thereto
filed on March 16, 2004; EPR's current report on Form 8-K filed on
April 5, 2004; EPR's current report on Form 8-K filed on April 21,
2004; EPR's current report on Form 8-K filed on May 6, 2004; EPR's
current report on Form 8-K filed on June 23, 2004; EPR's current
report on Form 8-K filed on June 25, 2004; and EPR's current report on
Form 8-K filed on July 27, 2004.
5. The description of EPR's common shares of beneficial interest, $.01
par value, contained in EPR's registration statement on Form 8-A filed
November 4, 1997, and the description of such common shares included
in EPR's prospectus included as a part of EPR's registration statement
on Form S-11 (Registration No. 333-35281) in the form in which it was
filed on September 10, 1997, as amended from time to time.
6. All documents filed by EPR under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the
termination of the offering of the securities covered by this
prospectus.
To obtain a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents) please contact us at:
INVESTOR RELATIONS DEPARTMENT
ENTERTAINMENT PROPERTIES TRUST
30 W. PERSHING ROAD, SUITE 201
KANSAS CITY, MISSOURI 64108
(816) 472-1700 / FAX (816) 472-5794
EMAIL INFO@EPRKC.COM
Our SEC filings are also available from our Internet website at
www.eprkc.com. The information on our website is not, and you must not consider
the information to be, a part of this prospectus.
As you read these documents, you may find some differences in information
from one document to another. If you find differences between the documents and
this prospectus, you should rely on the statements made in the most recent
document.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED IN STATES WHERE
THE OFFER IS PERMITTED. YOU SHOULD NOT ASSUME THE INFORMATION IN THIS PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
With the exception of historical information, this prospectus and our
reports filed under the Exchange Act and incorporated by reference in this
prospectus contain forward-looking statements, such as those pertaining to the
acquisition and leasing of properties, our capital needs and resources, and our
results of operations. Forward-looking statements involve numerous risks and
uncertainties and you should not rely on them as predictions of actual events.
There is no assurance the events or circumstances reflected in the
forward-looking statements will occur. You can identify forward-looking
statements by use of words such as "will be," "intend," "continue," "believe,"
"may," "expect," "hope," "anticipate," "goal," "forecast," or other comparable
terms, or by discussions of strategy, plans or intentions. Forward-looking
statements are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise. Our actual financial condition, results of operations or
business may vary materially from those contemplated by these forward-looking
statements and involve various uncertainties, including but not limited to the
factors described below:
o The performance of lease terms by tenants;
o Risk of our tenants filing for bankruptcy;
o The concentration of leases with our single largest tenant;
o Our continued qualification as a REIT;
o Risks related to real estate ownership and development;
o Risks associated with use of leverage to acquire properties;
o Risk of potential uninsured losses;
o Risks involved in joint ventures;
o Risks involved in investments in Canada;
o Risks in operating and leasing multi-tenant properties;
o Risks of environmental liability;
o Our continued ability to pay dividends at historical rates; and
o Certain limits on change in control imposed under law and by our
charter and bylaws.
We urge you to review carefully the "Risk Factors" section in this
prospectus for a more complete discussion of the risks involved in an investment
in our securities. We caution you not to place undue reliance on any
forward-looking statements, which reflect our analysis only.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RISK FACTORS
BEFORE YOU INVEST IN THE SHARES, YOU SHOULD BE AWARE THAT PURCHASING OUR
SHARES INVOLVES VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION IN
THIS PROSPECTUS, BEFORE PURCHASING SHARES.
RISKS THAT MAY IMPACT OUR FINANCIAL CONDITION OR PERFORMANCE
WE COULD BE ADVERSELY AFFECTED BY A TENANT'S BANKRUPTCY
If a tenant becomes bankrupt or insolvent, that could diminish the income
we expect from that tenant's leases. We may not be able to evict a tenant solely
because of its bankruptcy. On the other hand, a bankruptcy court might authorize
the tenant to terminate its leases with us. If that happens, our claim against
the bankrupt tenant for unpaid future rent would be subject to statutory
limitations that might be substantially less than the remaining rent owed under
the leases. In addition, any claim we have for unpaid past rent would likely not
be paid in full.
The development of megaplex movie theatres has rendered many older
multiplex theatres obsolete. To the extent our tenants own a substantial number
of multiplexes, they have been, or may in the future be, required to take
significant charges against earnings resulting from the impairment of those
assets. Megaplex theatre operators have also been and may in the future be
adversely affected by any overbuilding of megaplex theatres in their markets and
the cost of financing, building and leasing megaplex theatres. Two of our
tenants, Edwards Theatre Circuits, Inc. (now part of Regal Entertainment Group),
which operates two of our theatres, and Loews Cineplex Entertainment, which
operates two of our theatres, have filed for, and emerged from, bankruptcy
reorganization. We did not incur any significant expenses or loss of revenue as
a result of those bankruptcy reorganizations.
OPERATING RISKS IN THE ENTERTAINMENT INDUSTRY MAY AFFECT THE ABILITY OF OUR
TENANTS TO PERFORM UNDER THEIR LEASES
The ability of our tenants to operate successfully in the entertainment
industry and remain current on their lease obligations depends on a number of
factors, including the availability and popularity of motion pictures, the
performance of those pictures in tenants' markets, the allocation of popular
pictures to tenants and the terms on which the pictures are licensed. Neither we
nor our tenants control the operations of motion picture distributors. Megaplex
theatres represent a greater capital investment, and generate higher rents, than
the previous generation of multiplex theatres. For this reason, the ability of
our tenants to operate profitably and perform under their leases could be
dependent on their ability to generate higher revenues per screen than multiplex
theatres typically produce.
The success of "out-of-home" entertainment venues such as megaplex theatres
and entertainment retail centers also depends on general economic conditions and
the willingness of consumers to spend time and money on out-of-home
entertainment.
A SINGLE TENANT REPRESENTS A SUBSTANTIAL PORTION OF OUR LEASE REVENUES
As of September 1, 2004, approximately 65% of our megaplex theatre
properties were leased to AMC, a subsidiary of AMC Entertainment, Inc. (referred
to in this prospectus as AMCE) and 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 and acquiring other types of entertainment-related properties.
Nevertheless, our revenues and our continuing ability to pay shareholder
dividends are currently substantially dependent on AMC's performance under its
leases and AMCE's performance under its guaranty.
We believe AMC occupies a strong position in the industry and we intend to
continue acquiring and leasing back AMC theatres. However, if for any reason AMC
failed to perform under its lease obligations and AMCE did not perform under its
guaranty, we could be required to reduce or suspend our shareholder dividends,
and may not have sufficient funds to support operations, until substitute
tenants are obtained. If that happened, we cannot predict when or whether we
could obtain substitute quality tenants on acceptable terms.
THERE IS RISK IN USING DEBT TO FUND PROPERTY ACQUISITIONS
We have used leverage to acquire properties and expect to continue to do so
in the future. Although the use of leverage is common in the real estate
industry, our use of debt to acquire properties does expose us to some risks. If
a significant number of our tenants fail to make their lease payments and we
don't have sufficient cash to pay principal and interest on the debt, we could
default on our debt obligations. We are obligated to pay principal and interest
on our secured indebtedness whether or not the tenants are performing under
their leases. We could be in default under some of our indebtedness if a tenant
ceases operations at a property securing the debt and we are not able to obtain
a substitute tenant or property on a timely basis. Our debt financing is secured
by mortgages on our properties. If we fail to make our mortgage payments, the
lenders could declare a default and foreclose on those properties.
ONE OF OUR SECURED LOANS HAS A "HYPER-AMORTIZATION" PROVISION WHICH MAY
REQUIRE US TO REFINANCE THE LOAN OR SELL THE PROPERTIES SECURING THE LOAN PRIOR
TO MATURITY
As of August 31, 2004, we had approximately $97 million outstanding under a
single secured loan agreement that contains a "hyper-amortization" feature, in
which the principal payment schedule is rapidly accelerated, and our principal
payments are substantially increased, if we fail to pay the balance on the
anticipated prepayment date of July 11, 2008. We undertook this debt on the
assumption that we can refinance the debt prior to the hyper-amortization
payments becoming due. If we cannot obtain acceptable refinancing at the
appropriate time, the hyper-amortization payments will require substantially all
of the revenues from those properties securing the debt to be applied to the
debt repayment, which would substantially reduce our common share dividend rate
and could adversely affect our financial condition and liquidity.
WE MUST CONTINUALLY OBTAIN NEW FINANCING IN ORDER TO GROW
As a REIT, we are required to distribute at least 90% of our net income to
shareholders in the form of dividends. This means we are limited in our ability
to use internal capital to acquire properties and must continually raise new
capital in order to continue to grow and diversify our real estate portfolio.
Our ability to raise new capital depends in part on factors beyond our control,
including conditions in equity and credit markets, conditions in the cinema
exhibition industry and the performance of real estate investment trusts
generally. We continually consider and evaluate a variety of potential
transactions to raise additional capital, but we cannot assure that attractive
alternatives will always be available to us, nor that our common share price
will increase or remain at a level that will permit us to continue 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 U.S. federal income tax purposes, we
will be taxed as a corporation. We are organized and believe we qualify as a
REIT, and intend to operate in a manner that will allow us to continue to
qualify as a REIT. However, we cannot assure you that we will remain qualified
in the future. This is because qualification as a REIT involves the application
of highly technical and complex provisions of the Internal Revenue Code on which
there are only limited judicial and administrative interpretations, and depends
on facts and circumstances not entirely within our control. In addition, future
legislation, new regulations, administrative interpretations or court decisions
may significantly change the tax laws, the application of the tax laws to our
qualification as a REIT or the U.S. 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:
o We would not be allowed a deduction for dividends paid to shareholders
in computing our taxable income and would be subject to U.S. federal
income tax at regular corporate rates
o We could be subject to the U.S. federal alternative minimum tax and
possibly increased state and local taxes
o 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 on our common shares. As a result of these factors, our failure
to qualify as a REIT could adversely affect the market price for our shares.
OUR DEVELOPMENT FINANCING ARRANGEMENTS EXPOSE US TO FUNDING AND PURCHASE
RISKS
We have entered into a number of development financing arrangements with
prospective tenants. We intend to meet our funding obligations under these
arrangements with debt and/or equity financing. There is no assurance we can
obtain this financing at rates which will lock-in a spread between our cost of
capital and the rent payable under the leases to be entered into upon completion
of construction. We will be obligated to purchase and lease-back the theatres
that are subject to these arrangements at predetermined rates, which may or may
not reflect the fair market value of the property or the underlying lease on the
completion date.
AS WE ACQUIRE ADDITIONAL PROPERTIES, WE MAY HAVE DIFFICULTY MANAGING OUR
GROWTH, WHICH MAY HAVE AN ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS.
Our real estate portfolio has grown over 400% since our initial public
offering in 1997, including approximately $235 million in rental property
acquisitions since January 1, 2004. Although our administrative staff has grown
somewhat, we have conservatively managed our personnel costs relative to the
size of our asset base and intend to continue to do so. If we continue to grow
in the future, we may be required to increase our staffing and implement
additional management systems in order to manage that growth. We may have
difficulty integrating new people and managing our growth through acquisitions.
As a result, management's attention and resources may be diverted from our
existing operations. All of this could put a strain on our human resources and
may have an adverse effect on our profitability.
RISKS THAT APPLY TO OUR REAL ESTATE BUSINESS
THERE ARE RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE
Although the terms of our single-tenant leases obligate the tenants to bear
substantially all of the costs of operating the properties, investing in real
estate involves a number of risks, including:
o 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 a net lease
o The risk that changes in economic conditions or real estate markets
may adversely affect the value of our properties
o The risk that local conditions (such as oversupply of megaplex
theatres or other entertainment-related properties) could adversely
affect the value of our properties
o We may not always be able to lease properties at favorable rates
o We may not always be able to sell a property when we desire to do so
at a favorable price
o 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 mortgage debt obligation secured by the property and could
require us to fund reserves in favor of our mortgage lenders, thereby reducing
funds available for payment of dividends on our shares. We cannot be assured
that tenants will elect to renew their leases when the terms expire. If a tenant
does not renew its lease or if a tenant defaults on its lease obligations, there
is no assurance we could obtain a substitute tenant on acceptable terms. If we
cannot obtain another quality movie exhibitor to lease a megaplex theatre
property, we may be required to modify the property for a different use, which
may involve a significant capital expenditure and a delay in re-leasing the
property.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE
Our net leases require the tenants to carry comprehensive liability,
casualty, workers' compensation, extended coverage and rental loss insurance on
our properties. We believe the required coverage is of the type, and amount,
customarily obtained by an owner of similar properties. We believe all of our
properties are adequately insured. However, there are some types of losses, such
as catastrophic acts of nature, for which we or our tenants cannot obtain
insurance at an acceptable cost. If there is an uninsured loss or a loss in
excess of insurance limits, we could lose both the revenues generated by the
affected property and the capital we have invested in the property. We would,
however, remain obligated to repay any mortgage indebtedness or other
obligations related to the property. Since September 11, 2001, the cost of
insurance protection against terrorist acts has risen dramatically. There can be
no assurance our tenants will be able to obtain terrorism coverage, or that any
coverage they do obtain will adequately protect our properties against loss from
terrorist attacks.
THERE ARE RISKS INVOLVED IN JOINT VENTURE INVESTMENTS
We may continue to acquire or develop properties in joint ventures with
third parties when those transactions appear desirable. We would not own the
entire interest in any property acquired by a joint venture. Significant
decisions with respect to the ownership, leasing, management or disposition of a
joint venture property may require the consent of the joint venture partner. If
we have a dispute with a joint venture partner, we may feel it necessary or
become obligated to acquire the partner's interest in the venture. However, we
cannot assure you that the price we would have to pay or the timing of the
acquisition would be favorable to us. If we own less than a 50% interest in a
joint venture, or if the joint venture is jointly controlled, the assets and
financial results of the joint venture may not be reportable by us on a
consolidated basis, and the liabilities of the joint venture may not be included
within the liabilities reported on our consolidated balance sheet. To the extent
we owe commitments to, or are dependent on, any such "off-balance sheet"
arrangements, or if those arrangements or their properties or leases are subject
to material contingencies, our liquidity, financial condition and operating
results could be adversely affected by those commitments to off-balance sheet
arrangements.
OUR MULTI-TENANT PROPERTIES EXPOSE US TO ADDITIONAL RISKS
Our entertainment retail centers in Westminster, Colorado, New Rochelle,
New York and Ontario, Canada and similar properties we may seek to acquire or
develop in the future involve risks not typically encountered in the purchase
and lease-back of megaplex theatres which are operated by a single tenant. The
ownership or development of multi-tenant retail centers exposes us to the risk
that a sufficient number of suitable tenants may not be found to enable the
center to operate profitably and provide a return to us. Retail centers are also
subject to tenant turnover and fluctuations in occupancy rates, which could
affect our operating results. We are dependent on third-party management
companies to manage those centers for us. When a tenant's lease expires or is
terminated, we may be required to pay leasing commissions and tenant finish
costs to attract a substitute tenant. Multi-tenant retail centers also expose us
to the risk of potential "CAM slippage," which may occur if common area
maintenance fees paid by tenants are exceeded by the actual cost of taxes,
insurance and maintenance at the property.
FAILURE TO COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND OTHER LAWS
COULD RESULT IN SUBSTANTIAL COSTS
The operators of our U.S. properties 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 U.S. leases require the tenants to comply with the ADA.
The operators of our properties are also subject to various other federal,
state or provincial and local regulatory requirements. We believe the 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:
o As owner we may have to pay for property damage and for investigation
and clean-up costs incurred in connection with the contamination
o The law may impose clean-up responsibility and liability regardless of
whether the owner or operator knew of or caused the contamination
o 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
o Governmental entities and third parties may sue the owner or operator
of a contaminated site for damages and costs
These costs could be substantial and in extreme cases could exceed the
value of the contaminated property. The presence of hazardous substances or
petroleum products or the failure to properly remediate contamination may
adversely affect our ability to borrow against, sell or lease an affected
property. In addition, some environmental laws create liens on contaminated
sites in favor of the government for damages and costs it incurs in connection
with a contamination.
Most of our loan agreements require the Company or a subsidiary to
indemnify the lender against environmental liabilities. Our leases require the
tenants to operate the properties in compliance with environmental laws and to
indemnify us against environmental liability arising from the operation of the
properties. We believe all of our properties are in material compliance with
environmental laws. However, we could be subject to strict liability under
environmental laws because we own the properties. There is also a risk that
tenants may not satisfy their environmental compliance and indemnification
obligations under the leases. Any of these events could substantially increase
our cost of operations, require us to fund environmental indemnities in favor of
our secured 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
obligations or avoid a loan 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 SECURITIES
WE CANNOT ASSURE YOU WE WILL CONTINUE PAYING DIVIDENDS AT HISTORICAL RATES
Our ability to continue paying dividends on our common shares at historical
rates or to increase our common share dividend rate will depend on a number of
factors, including our financial condition and results of future operations, the
performance of lease terms by tenants, provisions in our secured loan covenants,
and our ability to acquire, finance and lease additional properties at
attractive rates. If we do not maintain or increase our common share dividend
rate, that could have an adverse effect on the market price of our common
shares.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR SECURITIES
One of the factors investors may consider in deciding whether to buy or
sell our securities 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 or interest rate on our
securities or seek securities paying higher dividends or interest.
MARKET PRICES FOR OUR SECURITIES MAY BE AFFECTED BY PERCEPTIONS ABOUT THE
FINANCIAL HEALTH OR SHARE VALUE OF OUR TENANTS OR THE PERFORMANCE OF REIT STOCKS
GENERALLY.
To the extent any of our tenants or other movie exhibitors report losses or
slower earnings growth, take charges against earnings resulting from the
obsolescence of multiplex theatres or enter bankruptcy proceedings, the market
price for our securities could be adversely affected. The market price for our
securities could also be affected by any weakness in movie exhibitor or REIT
stocks generally.
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 common shares or complete a takeover of EPR
which is not approved by our Board of Trustees. These include:
o A staggered Board of Trustees that can be increased in number without
shareholder approval
o 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
o The ability of the Board of Trustees to issue preferred shares, and to
reclassify preferred or common shares, without shareholder approval
o Limits on the ability of shareholders to remove trustees without cause
o Requirements for advance notice of shareholder proposals at annual
shareholder meetings
o Provisions of Maryland law restricting business combinations and
control share acquisitions not approved by the Board of Trustees
o Provisions of Maryland law protecting corporations (and by extension
REITs) against unsolicited takeovers by limiting the duties of the
trustees in unsolicited takeover situations
o Provisions of Maryland law providing that the trustees are not subject
to any higher duty or greater scrutiny than that applied to any other
director under Maryland law in transactions relating to the
acquisition or potential acquisition of control
o Provisions of Maryland law creating a statutory presumption that an
act of the trustees satisfies the applicable standards of conduct for
directors under Maryland law
o Provisions in secured loan or joint venture agreements putting EPR in
default upon a change in control
o Provisions of employment agreements with our officers calling for
forgiveness of share purchase loans 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.
THE JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 MAY ADVERSELY
AFFECT THE VALUE OF OUR SHARES
On May 28, 2003, the President signed the Jobs and Growth Tax Relief and
Reconciliation Act of 2003 into law, which provides favorable income tax rates
for certain corporate dividends received by individuals through December 31,
2008. Under this new law, REIT dividends are generally not eligible for the
preferential rates applicable to dividends unless the dividends are attributable
to income that has been subject to corporate-level tax or are attributable to
certain other dividends received by us. As a result, substantially all of the
dividends paid on our shares do not qualify for such lower rates. This new law
could cause stock in non-REIT corporations to be more attractive to investors
than stock in REITs, which may negatively affect the value of, and the market
for, our shares.
THE MARKET PRICE FOR OUR COMMON SHARES COULD BE ADVERSELY AFFECTED BY ANY
PREFERRED SHARES, WARRANTS OR DEBT SECURITIES WE MAY OFFER.
We have filed a universal shelf registration statement on Form S-3 to
register $400,000,000 of securities, which may include any combination of common
shares, preferred shares, warrants and debt securities. If we offer any
additional preferred shares or any warrants or debt securities on terms which
are not deemed accretive to our common shareholders, that may adversely affect
the market price for our common shares. In addition, the issuance of warrants
may create a significant market "overhang" which could be dilutive to our common
shareholders and adversely affect our common share price.
ABOUT EPR
BUSINESS
EPR is a self-administered REIT. Our real estate portfolio, with over $1
billion in assets, is comprised of 54 megaplex theatre properties located in
twenty states and Ontario, Canada, six entertainment retail centers located in
Westminster, Colorado, New Rochelle, New York and Ontario, Canada, other
specialty properties, and land parcels leased to restaurant and retail operators
adjacent to several of our theatre properties. Our theatre properties are leased
to prominent theatre operators, including AMC, Muvico, Regal, Consolidated,
Loews, Rave, AmStar, Wallace, Crown and Southern.
As of September 1, 2004, approximately 65% of our megaplex theatre
properties were leased to AMC as a result of a series of sale-leaseback
transactions pertaining to a number of AMC megaplex theatres, and approximately
61% of our annual lease revenues were derived from rental payments by AMC under
these leases.
Megaplex theatres typically have at least 14 screens with stadium-style
seating (seating with elevation between rows to provide unobstructed viewing)
and are equipped with amenities that significantly enhance the audio and visual
experience of the patron. We believe the development of megaplex theatres has
accelerated the obsolescence of many previously existing movie theatres by
setting new standards for moviegoers, who, in our experience, have demonstrated
their preference for the more attractive surroundings, wider variety of films
and superior customer service typical of megaplex theatres (see "Operating risks
in the entertainment industry may affect the ability of our tenants to perform
under their leases" and "Market prices for our securities 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").
We expect the development of megaplex theatres to continue in the United
States and abroad for the foreseeable future. With the development of the
stadium style megaplex theatre as the preeminent store format for cinema
exhibition, the older generation of flat-floor theatres has generally
experienced a significant downturn in attendance and performance. As a result of
the significant capital commitment involved in building new megaplex theatre
properties and the experience and industry relationships of our management, we
believe we will continue to have opportunities to provide capital to businesses
that seek to develop and operate these properties but would prefer to lease
rather than own the properties in order to minimize the impact of real estate
ownership on their financial statements. We believe our ability to finance these
properties will enable us to continue to grow and diversify our asset base.
EPR was formed on August 22, 1997 as a Maryland real estate investment
trust. We completed an initial public offering of our common shares on November
18, 1997. Our executive offices are located at 30 W. Pershing Road, Suite 201,
Kansas City, Missouri 64108. Our telephone number is (816) 472-1700.
RECENT DEVELOPMENTS
ACQUISITIONS
Since January 1, 2004, we have acquired approximately $235 million in
rental properties, increasing our rental property asset base by approximately
21%.
On March 1, 2004, we acquired, through our wholly-owned subsidiaries, four
entertainment retail centers anchored by AMC megaplex theatres located in
Ontario, Canada. The properties are the Mississauga Entertainment Centrum
located in suburban Toronto, the Oakville Entertainment Centrum located in
suburban Toronto, the Whitby Entertainment Centrum located in suburban Toronto,
and the Kanata Centrum Walk located in suburban Ottawa. The properties contained
an aggregate of approximately 893,000 square feet of retail and entertainment
space on the acquisition date. Our total acquisition cost for the properties was
approximately US $152 million, plus transaction costs. Approximately US $27
million of the purchase price was paid in the form of 747,243 restricted common
shares of EPR valued at US $36.25 per share. We have filed an effective
registration statement with the SEC to register the shares for resale by the
sellers of the properties. The cash portion of the purchase price was paid in
Canadian dollars and financed through Canadian-dollar nonrecourse fixed rate
mortgage loans provided by GMAC Commercial Mortgage of Canada, Limited in the
aggregate amount of approximately US $97 million. For additional information
about the acquisitions, see our current report on Form 8-K filed with the SEC on
March 15, 2004 and amended on March 16, 2004, and our quarterly report on Form
10-Q for the quarter ended March 31, 2004, incorporated by reference herein.
The following unaudited pro forma condensed income statements present
income statement information for the year ended December 31, 2003 and the six
months ended June 30, 2004 as if the Canadian properties and our interest in New
Roc Associates, L.P., which owns the New Roc City entertainment retail center in
New Rochelle, New York, had been acquired on January 1, 2003. The unaudited pro
forma information includes all adjustments considered necessary to present such
information in accordance with the requirements of Article 11 of Regulation S-X.
ENTERTAINMENT PROPERTIES TRUST
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2003
(In thousands except per share data)
Pro Forma
Adjustments New
Roc Associates,LP
Historical Historical Historical Historical Historical January 1 to Pro Forma
Entertainment Courtney Kanata Whitby Oakville Pro Forma October 27, 2003 Entertainment
Properties Trust Square LP Centrum LP Centrum LP Centrum LP Adjustments (note 4) Properties Trust
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Rental revenue $ 89,965 $ 2,686 $ 5,232 $ 3,220 $ 4,270 $ - $ 7,304 $ 112,677
Other income 1,195 34 21 8 19 - - 1,277
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Total income 91,160 2,720 5,253 3,228 4,289 - 7,304 113,954
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Property operating
expense 698 369 144 262 75 - 771 2,319
General and
administrative
expense 3,859 - - - - - 180 4,039
Interest expense, net 30,570 - - - - 6,343 (1) 2,521 39,434
Depreciation and
amortization 17,285 - - - - 4,059 (2) 2,445 23,789
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Income before minority
interest and income
from joint venture 38,748 2,351 5,109 2,966 4,214 (10,402) 1,387 44,373
Equity in income from
joint venture 401 - - - - - - 401
Minority interest (1,555) - - - - - (397) (1,952)
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Net income $ 37,594 $ 2,351 $ 5,109 $ 2,966 $ 4,214 $(10,402) $ 990 $ 42,822
Preferred dividend
requirements (5,463) - - - - - - (5,463)
---------------- ---------- ---------- ---------- ---------- ----------- ----------------- ----------------
Net income available
to common
shareholders $ 32,131 $ 2,351 $ 5,109 $ 2,966 $ 4,214 $(10,402) $ 990 $ 37,359
================ ========== ========== ========== ========== =========== ================= ================
Basic net income
per common share $ 1.81 $ 2.02
================ ================
Diluted net income
per common share $ 1.77 $ 1.96
================ ================
Shares used for
computation:
Basic 17,780 747 (3) 18,527
Diluted 19,051 747 (3) 19,798
NOTES:
(1) We did not assume any of the existing debt on the Canadian properties;
however, the purchase price was financed, in part, with debt of Cdn $128.6
million with a fixed rate of 6.85% and a term of 10 years. Pro forma
interest expense is computed using the average 2003 conversion rate of .72
to convert the annual interest expense of the debt from Canadian dollars to
US dollars.
(2) We purchased approximately US $152 million in buildings and land with the
acquisition of the properties in Ontario, Canada on March 1, 2004. Based on
appraisals dated October 1, 2003 and management analysis, $31.6 million,
$110.7 million and $9.7 million were allocated to land, buildings and
in-place leases, respectively. For the purpose of calculating pro forma
depreciation and amoritization, buildings are being depreciated over a
40-year life and in-place leases are being amortized over a 10- to 13-year
life on a straight-line basis. In addition, term debt fee amortization
related to the financing of the properties is being calculated based on
$1.2 million in term debt fees amortized over the term of the debt of 10
years.
(3) We issued 747,243 common shares to the sellers of the Canadian properties.
(4) We acquired an ownership interest in New Roc Associates, L.P. (New Roc) on
October 27, 2003. Pro forma information related to New Roc for the period
from January 1, 2003 to October 27, 2003, as if it had been acquired on
January 1, 2003, is presented above. For additional information regarding
New Roc, see our current report on Form 8-K/A dated October 27, 2003.
Certain reclassifications of pro forma information as presented in that
Form 8-K/A have been made in the tabular presentation set forth above.
ENTERTAINMENT PROPERTIES TRUST
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(in thousands except per share data)
Pro Forma
Historical Adjustments Pro Forma
Entertainment Historical Historical Historical Historical January 1,2004 Entertainment
Properties Courtney Kanata Whitby Oakville to Properties
Trust Square LP Centrum LP Centrum LP Centrum LP February 29,2004 Trust
------------- ---------- ---------- ---------- ---------- ---------------- -------------
Rental revenue $58,964 $434 $877 $514 $735 $ - $ 61,524
Other income 95 - 1 - 1 - 97
------- ------- ------- ------- ------- -------- --------
Total income 59,059 434 878 514 736 - 61,621
------- ------- ------- ------- ------- -------- --------
Property operating 1,125 53 101 77 11 - 1,367
expense
General and administra- 2,606 - - - - - 2,606
tive expense
Interest expense, net 19,978 - - - - 1,116(1) 21,094
Depreciation and amorti- 11,696 - - - - 677(2) 12,373
zation ------- ------- ------- ------- ------- -------- --------
Income before minority 23,654 381 777 437 725 (1,793) 24,181
interest and income
from joint ventures
Equity in income from 310 - - - - - 310
joint ventures
Minority interest (919) - - - - - (919)
------- ------- ------- ------- ------- -------- --------
Net income $23,045 $381 $777 $437 $725 $(1,793) $ 23,572
Preferred dividend (2,731) - - - - - (2,731)
requirements ------- ------- ------- ------- ------- -------- --------
Net income available to
common shareholders $20,314 $381 $777 $437 $725 $(1,793) $ 20,841
======= ======= ======= ======= ======= ======== ========
Basic net income per
common share $ 0.97 $ 0.99
======= =======
Diluted net income per
common share $ 0.94 $ 0.96
======= =======
Shares used for
computation:
Basic 20,969 125(3) 21,094
Diluted 22,411 125(3) 22,536
Notes:
(1) We did not assume any of the existing debt on the Canadian properties;
however, the purchase price was financed, in part, with debt of Cdn $128.6
million with a fixed rate of 6.85% and a term of 10 years. Pro forma interest
expense for the two months ended February 29, 2004 is computed using the average
conversion rate for that period of .76 to convert the annual interest expense on
the debt from Canadian dollars to U.S. dollars.
(2) We purchased approximately $152 million in buildings and land with the
acquisition of the properties in Ontario, Canada on March 1, 2004. Based on
appraisals dated October 1, 2003 and managmenet analysis, $31.6 million, $110.7
million and $9.7 million were allocated to land, buildings and in-place leases,
respectively. For the purpose of calculating pro forma depreciation and
amortization, buildings are being depreciated over a 40-year life and in-place
leases are being amortized over a 10- to 13-year life on a straight-line basis.
In addition, term debt fee amortization related to the financing of the
properties is being calculated based on $1.2 million in term debt fees amortized
over the term of the debt of 10 years.
(3) We issued 747,243 common shares to the sellers of the Canadian properties on
March 1, 2004. Pro forma shares were calculated for the two months ended
February 29, 2004.
On March 31, 2004, we acquired from AMC the AMC Hamilton 24 theatre in
suburban Trenton, New Jersey, the AMC Deer Valley 30 theatre in suburban
Phoenix, Arizona and the AMC Mesa Grand 24 theatre in Mesa, Arizona for an
aggregate purchase price of approximately $64.2 million. The acquisition price
was financed through a term loan in the amount of $64.2 million which was repaid
with the proceeds of the 2,587,500 common share offering referred to below. The
theatres contain an aggregate of 78 screens and have been leased-back to AMC
under long-term triple-net leases.
On July 28, 2004, we acquired an 18-screen Rave megaplex theatre
constructed on real estate owned by us in Peoria, Illinois for a purchase price
of approximately $10.9 million, and a 16-screen Southern Theatres megaplex
theatre constructed on real estate of which we are ground lessee in Lafayette,
Louisiana for a purchase price of approximately $8.3 million. The theatres have
been leased-back to the operators under long-term triple-net leases.
COMMON SHARE OFFERINGS
On April 26, 2004, we completed an offering of 2,250,000 common shares. The
underwriters also exercised an over-allotment option for 337,500 additional
shares for a total issuance of 2,587,500 shares. Net proceeds of the offering
were approximately $81.9 million and were used to repay the $64.2 million term
loan referred to above, reduce borrowings under our credit line and for other
corporate purposes.
On June 28, 2004, we completed an offering of 1,000,000 common shares. Net
proceeds of this offering were approximately $35.4 million and were used to
reduce borrowings under our credit line and for other corporate purposes.
FINANCINGS AND LINES OF CREDIT
On February 27, 2004, we entered into a second general partnership joint
venture with Atlantic of Hamburg, Germany (referred to in this prospectus as
Atlantic). We contributed the AMC Tampa Veterans 24 theatre to the partnership
in exchange for a 20% interest in the partnership and $8.24 million in cash.
Atlantic has an 80% interest in the partnership. Commencing January 1, 2007,
Atlantic will have the right to exchange up to 10% of its interest in the
partnership annually for common shares of EPR valued at the market price or, at
our option, the cash value of those shares.
On March 29, 2004, we amended our secured revolving credit facility with
Fleet National Bank (referred to in this prospectus as the Fleet Credit
Facility), to increase the maximum amount available for borrowing from $50
million to $150 million, subject to compliance with the borrowing base and other
covenants, extend the term to three years plus a one-year extension option and
reduce the cost of the facility to a pricing grid of LIBOR plus 175 to 250 basis
points. On April 1, 2004, we used approximately $20 million in borrowings under
the Fleet Credit Facility to pay off our secured credit facility with iStar
Financial and terminated the iStar credit facility. As a result of terminating
the iStar credit facility, we paid a prepayment penalty of $404 thousand and
recorded a non-cash expense during the second quarter of 2004 to write-off
approximately $730 thousand of unamortized financing fees related to the iStar
credit facility. We intend to use future borrowings under the Fleet Credit
Facility in the acquisition of properties.
DIVIDEND INCREASE
On March 17, 2004, our Board of Trustees approved a 12.5% increase in our
quarterly common share dividend to $0.5625 per share for the first quarter of
2004. We also paid a dividend of $0.5625 per share for the second quarter of
2004. We anticipate that the aggregate dividend paid on our common shares for
2004 will be approximately $2.25 per share, compared to an aggregate dividend of
$2.00 per share paid in 2003.
DEVELOPMENT PROJECTS
We had a total of six theatre projects under development as of September 1,
2004. These theatres will have a total of 96 screens and their total development
cost (including land) will be approximately $70.9 million. We have purchased the
underlying land for an aggregate of $17.1 million, and intend to fund the
remaining development costs through our Fleet Credit Facility and/or the
issuance of additional equity. The properties are being developed by the
prospective tenants. Development costs are advanced by us either in periodic
draws or upon successful completion of construction. If we determine that
construction is not being completed in accordance with the terms of a
development agreement, we can discontinue funding construction draws or refuse
to purchase the completed theatre. We have agreed to acquire the theatres and
lease them back to the operators at pre-determined rates.
BUSINESS OBJECTIVES AND STRATEGIES
Our primary business objective is to continue enhancing shareholder value
by achieving predictable and increasing Funds from Operations ("FFO") per share
through the acquisition of high-quality properties leased to leading
entertainment and entertainment-related business operators. FFO, a non-GAAP
financial measure, as defined by the National Association of Real Estate
Investment Trusts (NAREIT), means net income (computed in accordance with GAAP),
excluding gains and losses from sales of depreciable operating properties, plus
depreciation and amortization, and after adjustments for unconsolidated joint
ventures and other affiliates. See our annual report on Form 10-K for the year
ended December 31, 2003 and our quarterly reports on Form 10-Q for the quarters
ended March 31 and June 30, 2004 incorporated by reference herein for
reconciliations of FFO to GAAP Net Income Available to Common Shareholders. We
intend to achieve this objective by continuing to execute the Growth Strategies,
Operating Strategies and Capitalization Strategies described below.
GROWTH STRATEGIES
FUTURE PROPERTIES
We intend to continue pursuing acquisitions of high-quality
entertainment-related properties from operators with a strong market presence.
As a part of our growth strategy, we will consider entering into additional
joint ventures with other developers or investors in real estate, developing
additional megaplex theatre properties and developing or acquiring additional
multi-tenant, entertainment retail centers and single-tenant, out-of-home,
location-based entertainment and entertainment-related properties. We may also
evaluate and acquire in the future other types of income - producing properties
we believe would add value to our shareholders.
OPERATING STRATEGIES
LEASE RISK MINIMIZATION
To avoid initial lease-up risks and produce a predictable income stream, we
typically acquire single-tenant properties that are leased under long-term
leases. We believe our willingness to make long-term investments in properties
offers tenants financial flexibility and allows tenants to allocate capital to
their core businesses. Although we will continue to emphasize single-tenant
properties, we have also acquired and may continue to acquire multi-tenant
properties that we believe add value to our shareholders.
LEASE STRUCTURE
We typically structure 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. In
our multi-tenant property leases and some of our theatre leases, we require the
tenant to pay a common area maintenance charge to defray its pro rata share of
insurance, taxes and common area maintenance costs.
TENANT RELATIONSHIPS
We intend to continue developing and maintaining long-term working
relationships with theatre, retail, restaurant and other entertainment-related
business operators and developers by providing capital for multiple properties
on a national, international or regional basis, thereby enhancing efficiency and
value to those operators and to the Company.
PORTFOLIO DIVERSIFICATION
We will endeavor to further diversify our asset base by property type,
geographic location and tenant. In pursuing this diversification strategy, we
will target theatre, restaurant, retail and other entertainment-related business
operators which management views as leaders in their market segments and which
have the financial strength to compete effectively and perform under their
leases with us. We may also evaluate and acquire in the future other types of
income-producing properties we believe would add value to our shareholders.
CAPITALIZATION STRATEGIES
USE OF LEVERAGE; DEBT TO TOTAL CAPITALIZATION
We seek to enhance shareholder return through the use of leverage (see
"Risk Factors - "There is risk in using debt to fund property acquisitions"). In
addition, we have issued and may in the future issue additional equity as
circumstances warrant and opportunities to do so become available. We expect to
maintain a debt to total capitalization ratio (defined as total debt of the
Company as a percentage of shareholders' equity plus total debt) of
approximately 50% to 55%.
JOINT VENTURES
We will examine and pursue additional potential joint venture opportunities
with institutional investors or developers if they are considered to add value
to our shareholders. We may employ higher leverage in joint ventures (see "Risk
Factors - There are risks involved in joint venture investments").
PAYMENT OF REGULAR DISTRIBUTIONS
We have paid and expect to continue paying quarterly dividend distributions
to our common and preferred shareholders. Our Series A Preferred Shares have a
fixed dividend rate of 9.5%. Among the factors the Board of Trustees considers
in setting our common share dividend rate are the applicable REIT rules and
regulations that apply to distributions, our results of operations, including
FFO per share, and our Cash Available for Distribution (defined as net cash flow
available for distribution after payment of operating expenses, debt service,
and other obligations). We expect to continue periodically increasing
distributions on our common shares as FFO and Cash Available for Distribution
increase and as other considerations and factors warrant (see "Risk Factors - We
cannot assure you we will continue paying dividends at historical rates").
PROPERTIES
The following table lists, as of September 1, 2004, our rental properties,
their locations, acquisition dates, number of theatre screens, number of seats,
gross square footage, and the tenant. Except as otherwise noted, all of the real
estate investments listed below are owned or ground leased directly by us.
Acquisition Building
PROPERTY Location Date Screens Seats (gross sq.ft.) Tenant
-------- ---------------- ----------- ------- ----- -------------- ----------
MEGAPLEX THEATRE PROPERTIES
Grand 24(3)..........................................Dallas, TX 11/97 24 5,067 98,175 AMC
Mission Valley 20 (1)(3).............................San Diego, CA 11/97 20 4,361 84,352 AMC
Promenade 16(3)......................................Los Angeles, CA 11/97 16 2,860 129,822 AMC
Ontario Mills 30(3)..................................Los Angeles, CA 11/97 30 5,469 131,534 AMC
Lennox 24 (1)(3).....................................Columbus, OH 11/97 24 4,412 98,261 AMC
West Olive 16(3).....................................St. Louis, MO 11/97 16 2,817 60,418 AMC
Studio 30(3).........................................Houston, TX 11/97 30 6,032 136,154 AMC
Huebner Oaks 24(3)...................................San Antonio, TX 11/97 24 4,400 96,004 AMC
First Colony 24 (1)(6)...............................Houston, TX 11/97 24 5,098 107,690 AMC
Oakview 24 (1) ......................................Omaha, NE 11/97 24 5,098 107,402 AMC
Leawood Town Center 20(6)............................Kansas City, MO 11/97 20 2,995 75,224 AMC
Gulf Pointe 30 (2)(6)................................Houston, TX 2/98 30 6,008 130,891 AMC
South Barrington 30(6)...............................Chicago, IL 3/98 30 6,210 130,891 AMC
Cantera 30 (2)(5)....................................Chicago, IL 3/98 30 6,210 130,757 AMC
Mesquite 30 (2)(6)...................................Dallas, TX 4/98 30 6,008 130,891 AMC
Hampton Town Center 24(6)............................Norfolk, VA 6/98 24 5,098 107,396 AMC
Raleigh Grande Cinema 16(4)..........................Raleigh, NC 8/98 16 2,596 51,450 Consolidated
Pompano 18(4)........................................Pompano Beach, 8/98 18 3,424 73,637 Muvico
FL
Paradise 24(6).......................................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(6)....................................Los Angeles, CA 12/98 20 4,352 98,557 Edwards
Westminster 24(7)....................................Westminster, CO 6/99 24 4,812 107,000 AMC
Woodridge 18 (2)(9)..................................Woodridge, IL 6/99 18 4,405 80,600 Loews
Starlight 20(9)......................................Tampa, FL 6/99 20 3,928 83,000 Muvico
Palm Promenade 24(9).................................San Diego, CA 1/00 24 4,577 88,610 AMC
Crossroads 20(9).....................................Raleigh, NC 1/00 20 3,936 77,475 Consolidated
Elmwood Palace 20(9).................................New Orleans, LA 3/02 20 4,357 90,391 AMC
Clearview Palace 12(9)...............................New Orleans, LA 3/02 12 2,479 70,000 AMC
Hammond Palace 10(9).................................New Orleans, LA 3/02 10 1,531 39,850 AMC
Houma Palace 10(9)...................................New Orleans, LA 3/02 10 1,871 44,450 AMC
WestBank Palace 16(9)................................New Orleans, LA 3/02 16 3,176 71,607 AMC
Olathe Station 30(9).................................Kansas City, MO 6/02 30 4,200 125,000 AMC
Forum 30(9)..........................................Detroit, MI 6/02 30 5,041 131,000 AMC
Cherrydale 16(9).....................................Greenville, SC 6/02 16 2,744 51,450 Consolidated
Livonia 20(9)........................................Detroit, MI 8/02 20 3,808 78,000 AMC
Hoffman Town Centre 22(9)............................Alexandria, VA 10/02 22 4,150 132,903 AMC
Colonel Glenn 18(11).................................Little Rock, AR 12/02 18 4,122 79,330 Rave
AmStar Cinema 16(11).................................Macon, GA 3/03 16 2,950 66,660 AmStar
Star Southfield 20(11)...............................Detroit, MI 5/03 20 7,000 110,000 Loews
Southwind 12(11).....................................Lawrence, KS 6/03 12 2,481 42,497 Wallace
Veterans 24(8).......................................Tampa, FL 6/03 24 4,580 94,774 AMC
Columbiana Grande 14(11).............................Columbia, SC 9/03 14 2,952 55,400 Consolidated
New Roc City 18 and IMAX(10).........................New Rochelle, NY 10/03 18 3,240 99,127 Regal
Harbour View Grand 16(11)............................Suffolk, VA 11/03 16 3,098 61,500 Consolidated
The Grand 18 (11)(12)................................Hialeah, FL 12/03 18 4,012 77,400 Crown
Mississauga 16(13)...................................Toronto, ON 3/04 16 3,856 95,000 AMC
Oakville 24(13)......................................Toronto, ON 3/04 24 4,772 89,290 AMC
Whitby 24(13)........................................Toronto, ON 3/04 24 4,688 89,290 AMC
Kanata 24(13)........................................Ottawa, ON 3/04 24 4,764 89,290 AMC
Deer Valley 30(11)...................................Phoenix, AZ 3/04 30 5,877 113,768 AMC
Mesa Grand 24(11)....................................Mesa, AZ 3/04 24 4,530 94,774 AMC
Hamilton 24(11)......................................Hamilton, NJ 3/04 24 4,260 95,466 AMC
Rave Peoria 18(11)...................................Peoria, IL 7/04 18 4,063 82,330 Rave
Lafayette Grand 16(11)...............................Lafayette, LA 7/04 16 2,744 61,579 Southern
------ ------- -------------- ----------
SUBTOTAL............................................. 1,142 226,433 4,985,114
RETAIL, RESTAURANT AND OTHER PROPERTIES ====== ======= ==============
Westminster Promenade(11)............................Westminster, CO 10/98 -- -- 140,000 Multi-Tenant
Pompano Kmart........................................Pompano Beach, 11/98 -- -- 80,540 Kmart
FL
Pompano Restaurant...................................Pompano Beach, 11/98 -- -- 5,600 Nickels
FL
On-The-Border........................................Dallas, TX 1/99 -- -- 6,580 Brinkers
Texas Roadhouse......................................Dallas, TX 1/99 -- -- 6,000 TX Roadhouse
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
Johnnie Carino's.....................................Dallas, TX 3/03 -- -- 6,200 Kona Rest.
Group
Star Southfield Center(11)...........................Detroit, MI 5/03 -- -- 51,964 Multi-Tenant
Hawaiian Falls Adventure Water Park..................Garland, TX 5/03 -- -- Horizon
Cherrydale Shops.....................................Greenville, SC 6/03 -- -- 10,000 Multi-Tenant
New Roc City(10).....................................New Rochelle, NY 10/03 -- -- 447,000 Multi-Tenant
Harbor View Station(11)..............................Suffolk, VA 11/03 -- -- 21,855 Multi-Tenant
Whitby Entertainment Centrum(13).....................Toronto, ON 3/04 -- -- 123,553 Multi-Tenant
Oakville Entertainment Centrum(13)...................Toronto, ON 3/04 -- -- 127,071 Multi-Tenant
Mississauga Entertainment Centrum(13)................Toronto, ON 3/04 -- -- 139,160 Multi-Tenant
Kanata Entertainment Centrum(13).....................Ottawa, ON 3/04 -- -- 297,157 Multi-Tenant
------ ------- -------------- ----------
SUBTOTAL........................................... -- -- 1,489,280
------ ------- -------------- ----------
TOTAL.............................................. 1,142 226,433 6,474,394
====== ======= ==============
----------
(1) Third party ground leased property. Although we are the tenant under the
ground leases and have ultimate responsibility for performing the
obligations under the ground leases, pursuant to the theatre leases, the
theatre operators are responsible for performing our obligations under the
ground leases.
(2) In addition to the theatre property itself, we have acquired land parcels
adjacent to the theatre property, which we have or intend to ground lease
or sell to restaurant or other entertainment-themed operators.
(3) Property is included as security for a $105 million mortgage facility.
(4) Property is included as security for a $20 million mortgage facility.
(5) Property is included in the Atlantic - EPR I joint venture and as security
for a $17.8 million mortgage facility.
(6) Property is included as security for a $125 million mortgage facility.
(7) Property is included as security for a $17 million mortgage.
(8) Property is included in the Atlantic - EPR II joint venture and as security
for a $14.6 million mortgage facility.
(9) Property is included as security for $155.5 million in commercial mortgage
pass-through certificates.
(10) Property is included in a joint venture and as security for a $66 million
mortgage facility and a $4 million credit facility.
(11) Property is included as security for the Fleet Credit Facility.
(12) We own the ground on which the theatre is constructed and have entered into
a ground lease with the theatre operator.
(13) Property is included as security for a $97 million Canadian mortgage
facility.
OFFICE LOCATION
Our executive office is located in Kansas City, Missouri and is leased from
a third party landlord. The office occupies approximately 10,960 square feet
with annual rentals of $192,000. The lease expires in December 2009.
TENANTS AND LEASES
As of September 1, 2004, our existing megaplex theatre leases provided for
aggregate annual rentals of approximately $98.3 million (on a consolidated
basis, excluding two unconsolidated joint venture properties), or an average
annual rental of approximately $1.9 million per property. 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. As of September 1, 2004, our existing retail and other leases
provided
for aggregate annual rentals of approximately $17.9 million (on a consolidated
basis, including joint venture properties), or an average annual rental of
approximately $128 thousand per property.
USE OF PROCEEDS
All net proceeds from the sale of the shares will go to the selling
shareholders. We will not receive any of the proceeds from the sale of shares by
the selling shareholders.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain material U.S. federal income tax
consequences is based on current law and does not address all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
(including insurance companies, financial institutions and broker-dealers)
subject to special treatment under U.S. federal income tax laws.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF SHARES.
We believe we have operated in a manner that permits EPR to satisfy the
requirements for qualification and taxation as a REIT under the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). We
intend to continue to satisfy those requirements. No assurance can be given,
however, that these requirements will be met.
The provisions of the Code and the Treasury Regulations thereunder relating
to qualification and operation as a REIT are highly technical and complex. The
following describes certain material aspects of the laws that govern the U.S.
federal income tax treatment of a REIT and its shareholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and Treasury
Regulations thereunder, and administrative and judicial interpretations thereof.
In the opinion of Sonnenschein Nath & Rosenthal LLP, the Company is
organized in conformity with the requirements for qualification as a REIT for
U.S. federal income tax purposes, and its current method of operation has
enabled and will continue to enable it to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based solely on information and representations made by our
management. Moreover, our qualification and taxation as a REIT depend upon our
ability to meet, through actual annual operating results, distribution levels
and diversity of share ownership, and various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by
Sonnenschein Nath & Rosenthal LLP. Accordingly, no assurance can be given by
counsel or the Company that the actual results of our operations for any
particular taxable year will satisfy these requirements (see "Failure to
Qualify"). Sonnenschein Nath & Rosenthal LLP will not review our compliance with
these tests, and has not undertaken to update its opinion subsequent to the date
of this prospectus.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are satisfied, entities such as EPR that invest primarily in real
estate and that otherwise would be treated for U.S. federal income tax purposes
as corporations are generally not taxed at the corporate level on their "REIT
Taxable Income" (generally the REIT's taxable income adjusted for, among other
things, the disallowance of the dividends-received deduction generally available
to corporations) that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and shareholder levels) that generally results from investing in
corporations.
If EPR fails to qualify as a REIT in any year, we will be subject to U.S.
federal income tax as if we were a domestic corporation, and our shareholders
will be taxed in the same manner as shareholders of ordinary corporations. In
this event, EPR could be subject to potentially significant tax liabilities and
the amount of cash available for distribution to our shareholders could be
reduced.
TAXATION OF THE COMPANY
GENERAL
In any year in which EPR qualifies as a REIT, in general, we will not be
subject to U.S. federal income tax on that portion of our net income that we
distribute to shareholders. However, EPR will be subject to U.S. federal income
tax in these regards: (1) EPR will be taxed at regular corporate rates on any
undistributed REIT Taxable Income, including
undistributed net capital gains (however, a REIT can elect to "pass through" any
of its taxes paid on its undistributed net capital gain to its shareholders on a
pro rata basis), (2) under certain circumstances, EPR may be subject to the
"alternative minimum tax" on any items of tax preference, (3) if EPR has: (i)
net income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business; or (ii)
other nonqualifying income from foreclosure property, we will be subject to tax
at the highest corporate rate on such income, (4) if EPR has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than (i) foreclosure property, and (ii) property held
for at least four years, meeting certain additional requirements), such income
will be subject to a 100% tax, (5) if EPR fails to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which EPR fails the 75%
gross income test or a 90% gross income threshold, multiplied by (b) a fraction
intended to reflect EPR's profitability, (6) if EPR fails to distribute during
each calendar year at least the sum of: (i) 85% of our ordinary income for that
year; (ii) 95% of our capital gain net income for that year; and (iii) any
undistributed taxable income from prior periods, EPR would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed, (7) if EPR acquires any asset from a C corporation (generally, a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the asset in EPR's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation and no election
is made for any gains on such transaction to be taxed currently, and EPR
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which that asset was acquired by EPR, then, to the
extent of any built-in gain at the time of acquisition, such gain will be
subject to tax at the highest regular corporate rate, (8) if EPR has certain
redetermined rents, deductions and excess interest between itself and a taxable
REIT subsidiary, a 100% tax could apply to such amounts, and (9) a 35% tax could
apply to any excess inclusions allocable to any disqualified entities that hold
interests in EPR.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest, (3) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code, (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code,
(5) the beneficial ownership of which is held by 100 or more persons (the "100
person test"), (6) not more than 50% in value of the outstanding shares of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year (the
"closely-held test"), (7) which has elected to be treated as a REIT, and (8)
which meets certain other tests, described below, regarding distributions and
the nature of its income and assets. The Code provides that conditions (1)
through (4) must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5) and
(6) did not apply until after the first taxable year for which an election was
made by EPR to be taxed as a REIT. A REIT's failure to satisfy condition (6)
during a taxable year will not result in its disqualification as a REIT under
the Code for that taxable year as long as (i) the REIT satisfies the shareholder
demand statement requirements described in the succeeding paragraph and (ii) the
REIT did not know, or exercising reasonable diligence, would not have known,
whether it had failed condition (6). A REIT must also report its income for U.S.
federal income tax purposes based on the calendar year.
In order to assist EPR in complying with the 100 person test and the
closely-held test, and for certain non-tax purposes, we have placed certain
restrictions on the transfer of our shares to prevent further concentration of
share ownership (See "Description of Securities"). To evidence compliance with
these requirements, we must maintain records which disclose the actual ownership
of our outstanding shares. In fulfilling our obligations to maintain records, we
must demand written statements each year from the record holders of designated
percentages of our shares disclosing the actual owners of the shares. A list of
those persons failing or refusing to comply with such demand must be maintained
as part of EPR's records. A shareholder failing or refusing to comply with EPR's
written demand must submit with his or her tax returns a similar statement
disclosing the actual ownership of shares and certain other information. EPR's
Declaration of Trust imposes restrictions on the transfer of shares that are
intended to assist EPR in continuing to satisfy the share ownership
requirements, among other purposes.
Although EPR intends to satisfy the shareholder demand letter rules
described in the preceding paragraph, our failure to satisfy these requirements
may result in the imposition of IRS penalties.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to that share. In addition, the character of the
assets and gross income of a partnership shall retain the same character in the
hands of a partner qualifying as a REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests described below.
ASSET TESTS
At the close of each quarter of EPR's taxable year, EPR must satisfy two
tests relating to the nature of its assets. First, at least 75% of the value of
EPR's total assets must be represented by (1) interests in real property, (2)
interests in mortgages on real property, (3) shares in other REIT's, (4) cash,
(5) cash items (including receivables arising in the ordinary course of the
REIT's business) and (6) government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by EPR for the one-year period beginning on the date of receipt
of such new capital). Second, (a) not more than 25% of the value of a REIT's
total assets can consist of securities except for items described in paragraphs
(1) through (6), (b) not more than 20% of the value of a REIT's total assets can
be represented by securities of one or more taxable REIT subsidiaries, and (c)
except with respect to taxable REIT subsidiaries and the securities previously
mentioned in paragraphs (1) through (6), (i) not more than 5% of the value of
the REIT's total assets can consist of securities of any one issuer, (ii) the
REIT cannot hold securities having a value of more than 10% of the total voting
power of the outstanding securities of any one issuer and (iii) the REIT cannot
hold securities having a value of more than 10% of the total value of the
outstanding securities of any one issuer. For purposes of the requirements of
paragraph (iii), certain "straight debt" obligations may be disregarded if
certain requirements are met. EPR may own "qualified REIT subsidiaries," which
are, in general, corporate subsidiaries 100% owned by a REIT which do not elect
to be treated as a taxable REIT subsidiary. All assets, liabilities and items of
income, deduction and credit of a qualified REIT subsidiary will be treated as
owned and realized directly by EPR. For purposes of the asset requirements, the
securities of a qualified REIT subsidiary will be ignored.
A taxable REIT subsidiary is generally any corporation the stock of which
is owned in whole or in part by a REIT and with respect to which both the REIT
and the subsidiary elect that it be taxed as a taxable REIT subsidiary.
GROSS INCOME TESTS
There are two separate percentage tests relating to the sources of EPR's
gross income which must be satisfied for each taxable year.
THE 75% TEST. At least 75% of EPR's gross income for each taxable year must
be "qualifying income." Qualifying income generally includes (i) "rents from
real property" (except as modified below), (ii) interest on obligations
collateralized by mortgages on, or interests in, real property, (iii) gain from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of EPR's trade or business ("dealer property"), (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of those shares, (v) abatements and refunds of real property taxes,
(vi) income from the operation, and gain from the sale, of property acquired at
or in lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"), (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property, (viii) "qualified temporary investment income," and (ix) gain from the
sale or other disposition of a real estate asset which is not a prohibited
transaction.
In addition, rents received from a tenant generally will not qualify as
rents from real property in satisfying the 75% test (or the 95% test described
below) if EPR, or an owner of 10% or more of EPR, directly or constructively
owns 10% or more of the voting power or value of that tenant, if that tenant is
a corporation, or 10% or more of the assets or net profits of the tenant, if the
tenant is not a corporation (a "related party tenant"). In addition, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease on a
fair market value basis, then the portion of rent attributable to such personal
property will not qualify as rents from real property. Moreover, any amount
received or accrued, directly or indirectly, generally will not qualify as rents
from real property (or as interest income) for purposes of the 75% and 95% gross
income tests if it is based in whole or in part on the income or profits of any
person. Rent or interest will not be disqualified, however, solely by reason of
being based on a fixed percentage of receipts or sales. Finally, for rents
received to qualify as rents from real property, EPR generally must not operate
or manage the property or furnish or render services to tenants, other than
through an "independent contractor" from whom EPR does not derive or receive any
income, or through a taxable REIT subsidiary. The "independent contractor"
requirement, however,
does not apply to the extent the services provided by EPR are "usually or
customarily rendered" in connection with the rental of space for occupancy only,
and are not otherwise considered "rendered to the occupant." For both the
related party tenant rules and determining whether an entity qualifies as an
independent contractor, certain attribution rules of the Code apply, pursuant to
which shares held by one entity are deemed held by another.
Amounts paid to a REIT by a taxable REIT subsidiary as rent will not be
excluded from rents from real property if at least 90% of the leased space of
the property is rented to persons other than the taxable REIT subsidiary of such
REIT and other than persons that are considered related under Section
856(d)(2)(B) of the Code and the amount paid is substantially comparable to
rents paid by other tenants of the REIT's property for comparable space.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of EPR's gross income for each taxable year
must be derived from the above-described qualifying income, or from dividends,
interest or gains from the sale or disposition of stock or other securities that
are not dealer property. Dividends and interest on any obligation not
collateralized by an interest in real property are included for purposes of the
95% test, but not for purposes of the 75% test. Furthermore, income earned on
interest rate swaps and caps entered into as liability hedges against
indebtedness incurred to acquire or carry real property qualify for the 95% test
(but not the 75% test). In certain cases, Treasury Regulations treat a debt
instrument and a liability hedge as a synthetic debt instrument for all purposes
of the Code. If a liability hedge entered into by a REIT is subject to these
rules, income earned thereon will operate to reduce its interest expense, and,
therefore such income will not affect the REIT's compliance with either the 75%
or 95% tests.
Even if EPR fails to satisfy one or both of the 75% or 95% tests for any
taxable year, it may still qualify as a REIT for that year if it is entitled to
relief under certain provisions of the Code. These relief provisions will
generally be available if (i) EPR's failure to comply was due to reasonable
cause and not to willful neglect, (ii) EPR reports the nature and amount of each
item of its income included in the 75% and 95% tests on a schedule attached to
its tax return, and (iii) any incorrect information on this schedule is not due
to fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances EPR would be entitled to the benefit of these relief
provisions. If these relief provisions apply, EPR will, as discussed above,
still be subject to a special tax upon the greater of the amount by which it
fails either the 75% test or 90% threshold for that year.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, we are required to make distributions (other
than capital gain distributions) to our shareholders each year in an amount at
least equal to (A) the sum of (i) 90% of EPR's REIT Taxable Income (computed
before deductions for dividends paid and excluding net capital gain), and (ii)
90% of the net income (after tax), if any, from foreclosure property, minus (B)
the sum of certain items of non-cash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before we timely file our tax return for that year and if paid on or
before the first regular distribution payment after such declaration. To the
extent we do not distribute all of our net capital gain or distribute at least
90%, but less than 100%, of our REIT Taxable Income, as adjusted, we will be
subject to tax on the undistributed amount at regular capital gains or ordinary
corporate tax rates, as the case may be. (However, a REIT can elect to "pass
through" any of its taxes paid on its undistributed net capital gain to its
shareholders on a pro rata basis). Furthermore, if the REIT should fail to
distribute during each calendar year at least the sum of (i) 85% of its ordinary
income for that year, (ii) 95% of its net capital gain for that year, and (iii)
any undistributed taxable income from prior periods, the REIT would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. For these purposes, dividends declared to shareholders of
record in October, November or December of one calendar year and paid by January
31 of the following calendar year are deemed paid as of December 31 of the
initial calendar year.
We believe that we have made and will make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible that in the
future we may not have sufficient cash or other liquid assets to meet the 90%
distribution requirement, due to timing differences between the actual receipt
of income and actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing our REIT Taxable Income
on the other hand. Further, it is possible that from time to time, we may be
allocated a share of net capital gain attributable to any depreciated property
we sell that exceeds our allocable share of cash attributable to that sale. To
avoid any problem with the 90% distribution requirement, we will closely monitor
the relationship between our REIT Taxable Income and cash flow and, if
necessary, will borrow funds in order to satisfy the distribution requirement
(See "Risk Factors").
If it is "determined" that we failed to meet the 90% distribution
requirement as a result of an "adjustment" to our tax return by the IRS, we may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us, nor will they be required to be made. In such
event, to the extent of our current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate shareholders may be eligible for
the dividends-received deduction. In addition, individual shareholders would be
taxable on such dividends at a current tax rate of 15%. Unless entitled to
relief under specific statutory provisions, we (and any successor of us) will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether we would be entitled to such statutory relief.
RECENT TAX LEGISLATION
On May 28, 2003, the President signed into law the Jobs and Growth Tax
Relief Reconciliation Act of 2003, which reduces the maximum tax rate for both
dividends and long-term capital gains to 15% for most non-corporate taxpayers.
Because we generally are not subject to U.S. federal income tax on the portion
of our REIT Taxable Income or capital gains distributed to our shareholders, our
dividends generally are not eligible for the reduced rate and will continue to
be taxed at the higher tax rates applicable to ordinary income. However, the new
15% rate does apply to (i) long-term capital gains, if any, recognized on the
disposition of our shares; (ii) our dividends designated as long-term capital
gain dividends (except to the extent attributable to (a) real estate
depreciation, in which case such distributions continue to be subject to tax at
a 25% rate), and (b) collectibles and certain small business stock, in which
case such distributions continue to be subject to tax at a 28% rate); (iii) our
dividends to the extent attributable to dividends received by us from any non-
REIT corporations, such as taxable REIT subsidiaries, if applicable; and (iv)
our dividends to the extent attributable to income upon which we have paid
corporate income tax (for example, if we distribute taxable income that we
retained and paid tax on in the prior year).
The dividend and capital gains rate reductions provided in the Jobs and
Growth Tax Relief Reconciliation Act of 2003 generally are effective for taxable
years ending on or after May 6, 2003, except that the reductions do not apply to
taxable years beginning after December 31, 2008. Absent future legislation, the
maximum tax rate on long-term capital gains will return to 20% for taxable years
beginning in 2009, and the maximum tax rate on dividends paid to individuals
will increase to 35% in 2009 and 39.6% in 2011.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of shares who
(for U.S. federal income tax purposes) (i) is a citizen or resident of the
United States, (ii) is a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof (except, in the case of a partnership, the Treasury provides otherwise
by regulations), (iii) is an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) is a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. persons who have the authority to control all substantial
decisions of the trust, or has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
As long as EPR qualifies as a REIT, distributions made out of our current
or accumulated earnings and profits (and not designated as capital gain
dividends) will generally constitute dividends taxable to our taxable corporate
U.S. Shareholders as ordinary income taxed at a maximum rate of 35% and such
U.S. Shareholders will not be eligible for the dividends received deduction
otherwise available with respect to dividends received by corporate U.S.
Shareholders. It is not likely that a significant amount of our dividends paid
to individual U.S. Shareholders will constitute "qualified dividend income"
eligible for the current reduced tax rate of 15%. Dividends received from a REIT
generally are treated as "qualified dividend income" eligible for the reduced
tax rate to the extent that the REIT has received "qualified dividend income"
from other non-REIT corporations, such as taxable REIT subsidiaries. In
addition, if a REIT pays U.S. federal income tax on its undistributed net
taxable income or on certain gains from the disposition of assets acquired from
C corporations, the excess of the income subject to tax over the taxes paid will
be treated as "qualified dividend income" in the subsequent taxable year.
Distributions made by EPR that are properly designated as capital gain
dividends will be taxable to U.S. Shareholders as gains (to the extent they do
not exceed our actual net capital gain for the taxable year) from the sale or
disposition of a capital asset. Depending on the period of time EPR held the
assets which produced the gains, and on certain designations, if any, which may
be made by EPR, such gains may be taxable to noncorporate U.S. Shareholders at a
15%, 25% or 28% rate, without regard to the period for which the U.S.
Shareholder has held the shares. U.S. Shareholders that are corporations may,
however, be required to treat up to 20% of certain capital gain dividends as
ordinary income. To the extent EPR makes distributions (not designated as
capital gain dividends) in excess of our current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in his shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in his shares taxable as capital gain, (provided
that the shares have been held as a capital asset) and will be taxable as
long-term capital gain if the shares have been held for more than one year.
Dividends declared by EPR in October, November or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by EPR and received by the shareholder on December 31st
of that year; provided the dividend is actually paid by EPR on or before January
31st of the following calendar year. Shareholders may not include in their own
income tax returns any net operating losses or capital losses of EPR.
Distributions made by EPR and gain arising from the sale or exchange by a
U.S. Shareholder of shares will not be treated as passive activity income, and,
as a result, U.S. Shareholders generally will not be able to apply any "passive
losses" against such income or gain. Distributions made by EPR (to the extent
they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of shares and certain qualifying
dividends (or distributions treated as such), will not be treated as investment
income under certain circumstances.
Upon any sale or other disposition of shares, a U.S. Shareholder will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the shares for tax purposes. Such gain or loss will be capital
gain or loss if the shares have been held by the U.S. Shareholder as a capital
asset and, with respect to a non-corporate U.S. Shareholder, will be long-term
gain or loss if the shares have been held for more than one year at the time of
disposition. In general, any loss recognized by a U.S. Shareholder upon the sale
or other disposition of shares that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of capital gain dividends received by such U.S. Shareholder
from EPR which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
EPR will report to our domestic shareholders and to the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if any
from those dividends. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate equal to the fourth lowest rate of tax
under Section 1(c) of the Code (which is currently 28%) with respect to
dividends paid and redemption proceeds unless the shareholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules.
Notwithstanding the foregoing, EPR will institute backup withholding with
respect to a shareholder when instructed to do so by the IRS. A shareholder that
does not provide EPR with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the shareholder's U.S. federal income tax liability.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Revenue rulings, however, are
interpretive in nature and are subject to revocation or modification by the IRS.
Based upon the ruling and the analysis therein, distributions by EPR to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided the
tax exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, and that the shares
are
not otherwise used in an unrelated trade or business of the tax-exempt entity.
In addition, REITs generally treat the beneficiaries of qualified pension trusts
as the beneficial owners of REIT shares owned by such pension trusts for
purposes of determining if more than 50% of the REIT's shares are owned by five
or fewer individuals. However, if a pension trust owns more than 10% of the
REIT's shares (by value), it can be subject to UBTI on all or a portion of REIT
dividends made to it, if the REIT is treated as a "pension-held REIT." A
pension-held REIT is any REIT if more than 25% (by value) of its shares are
owned by at least one pension trust, or one or more pension trusts, each of whom
owns more than 10% (by value) of such shares, and in the aggregate, such pension
trusts own more than 50% (by value) of its shares. EPR does not expect to be
treated as a "pension-held REIT." However, because our common shares are
publicly traded, no assurance can be given in this regard.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
U.S. federal income tax under Section 501(c)(7), (9), (17) and (20) of the Code,
respectively, income from an investment in EPR will constitute UBTI. However,
income from an investment in EPR will not constitute UBTI for voluntary employee
benefit associations, supplemental unemployment trusts and qualified group legal
services plans if the organization is able to deduct amounts "set aside" or
placed in reserve for certain purposes so as to offset the UBTI generated by its
investment in EPR. Such prospective shareholders should consult with their own
tax advisors concerning these "set aside" and reserve requirements.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of the ownership and
disposition of shares by persons who are not U.S. Shareholders ("Non-U.S.
Shareholders") are complex and no attempt is made in this prospectus to provide
more than a summary of these rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of federal, state,
local and any foreign income tax laws with regard to an investment in EPR,
including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
EPR of "United States real property interests" ("USRPIs"), as defined in the
Code, and not designated by EPR as capital gain dividends will be treated as
dividends of ordinary income to the extent they are made out of current or
accumulated earnings and profits of EPR. Unless such distributions are
effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or
business (or, if an income tax treaty applies, are attributable to a U.S.
permanent establishment of the Non-U.S. Shareholder), the gross amount of the
distributions will ordinarily be subject to U.S. withholding tax at a 30% or
lower treaty rate, if applicable. In general, Non-U.S. Shareholders will not be
considered engaged in a U.S. trade or business (or, in the case of an income tax
treaty, as having a U.S. permanent establishment) solely by reason of their
ownership of shares. If income on shares is treated as effectively connected
with the Non-U.S. Shareholder's conduct of a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the Non-U.S. Shareholder), the Non-U.S. Shareholder generally will be subject to
tax in the same manner as U.S. Shareholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in the case
of a shareholder that is a foreign corporation). EPR expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any distributions of
ordinary income made to a Non-U.S. Shareholder unless the Non-U.S. Shareholder
provides us with a (i) properly executed IRS Form W-8 BEN claiming an exemption
from or reduction in the rate of withholding under the benefit of a tax treaty,
or (ii) IRS Form W-8 ECI claiming that the distribution is not subject to
withholding tax because it is effectively connected with the Non-U.S.
Shareholder's conduct of a U.S. trade or business (or, if an income tax treaty
applies, is attributable to a U.S. permanent establishment of the Non-U.S.
Shareholder).
Unless the shares constitute USRPIs, distributions in excess of current and
accumulated earnings and profits of EPR will not be taxable to a shareholder to
the extent such distributions do not exceed the adjusted basis of the
shareholder's shares but rather will reduce the adjusted basis of the shares. To
the extent such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares, as described below. If it cannot be determined at
the time a distribution is made whether or not the distribution will be in
excess of current and accumulated earnings and profits, the distributions will
be subject to withholding at the same rate as dividends. If, however, shares are
treated as USRPIs, then unless otherwise treated as a dividend for withholding
tax purposes as described below, any distributions in excess of current or
accumulated earnings and profits will generally be subject to 10% withholding
and, to the extent such distributions also exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they will also give rise to gain from the sale or
exchange of the shares, the tax treatment of which is described below.
Distributions that are designated by EPR at the time of distribution as
capital gain dividends (other than those arising from the disposition of a
USRPI) generally will not be subject to taxation, unless (i) investment in the
shares is effectively connected with the Non-U.S. Shareholder's U.S. trade or
business (or, if an income tax treaty applies, it is attributable to a U.S.
permanent establishment of the Non-U.S. Shareholder), in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. Shareholders with
respect to such gain (except that a Shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax), or (ii) the Non-U.S.
Shareholder is a non-resident alien individual who was present in the U.S. for
183 days or more during the taxable year and either has a "tax home" in the U.S.
or sold his shares under circumstances in which the sale was attributable to a
U.S. office, in which case the non-resident alien individual will be subject to
a 30% tax on the individual's capital gains.
For each year in which EPR qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EPR of USRPIs ("USRPI Capital
Gains"), such as properties beneficially owned by EPR, will be taxed to a
Non-U.S. Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed
to a Non-U.S. Shareholder as gain effectively connected with a U.S. trade or
business regardless of whether such dividends are designated as capital gain
dividends. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. Shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) on such distributions. Also, distributions of USRPI Capital Gains
may be subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption or rate reduction. EPR is required
by applicable Treasury Regulations to withhold a portion of any distribution
consisting of USRPI Capital Gains at a current rate of 35%. This amount may be
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares will
generally not be taxed under FIRPTA if the shares do not constitute a USRPI.
Shares will not be considered a USRPI if EPR is a "domestically controlled
REIT," or if the shares are part of a class that is regularly traded on an
established securities market and the holder owned 5% or less of the class sold
during a specified testing period. A "domestically controlled REIT" is defined
generally as a real estate investment trust in which at all times during a
specified testing period less than 50% in value of the shares was held directly
or indirectly by foreign persons. EPR believes that it is a "domestically
controlled REIT," and therefore the sale of shares will not be subject to
taxation under FIRPTA. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the shares may be required
to withhold 10% of the purchase price and remit such amount to the IRS. However,
since our common shares and Series A Preferred Shares are publicly traded, no
assurance can be given in this regard.
Gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in the shares is effectively connected with a U.S. trade or business
of the Non-U.S. Shareholder (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Shareholder), in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and has a "tax home" in the U.S., in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
U.S. Shareholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a disposition of shares are paid by or through a U.S.
office of a broker, the payment is subject to information reporting and backup
withholding unless the disposing Non-U.S. Shareholder certifies as to his name,
address and non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the U.S. through a non-U.S.
office of a non-U.S. broker. U.S. information reporting requirements (but not
backup withholding) will apply, however, to a payment of disposition proceeds
outside the U.S. if (i) the payment is made through an office outside the U.S.
of a broker that is either (a) a U.S. person, (b) a foreign person that derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the U.S., (c) a "controlled foreign corporation" for U.S. federal
income tax purposes, or (d) a foreign partnership more than 50% of the capital
or profits of which is owned by one or more U.S. persons or which engages in a
U.S. trade or business, and (ii) the broker fails to obtain documentary evidence
that the shareholder is a Non-U.S. Shareholder and that certain conditions are
met or that the Non-U.S. Shareholder otherwise is entitled to an exemption.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective investors should recognize that the present U.S. federal income
tax treatment of an investment in EPR may be modified by legislative, judicial
or administrative action at any time, and that any such action may affect
investments and commitments previously made. The rules dealing with U.S. federal
income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions or regulations and revised interpretations of established concepts
as well as statutory changes. Revisions in U.S. federal tax laws and
interpretations thereof could adversely affect the tax consequences of an
investment in EPR.
STATE TAX CONSEQUENCES AND WITHHOLDING
EPR and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of EPR and its
shareholders may not conform to the U.S. federal income tax consequences
discussed above. Several states in which EPR may own properties treat REITs as
ordinary corporations. EPR does not believe, however, that shareholders will be
required to file state tax returns, other than in their respective states of
residence, as a result of the ownership of shares. However, prospective
shareholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in EPR.
YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES TO YOU OF THE OWNERSHIP AND SALE OF SHARES IN AN ENTITY
ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF COMMON SHARES
This summary of our common shares is not meant to be complete and is
qualified in its entirety by reference to our Amended and Restated Declaration
of Trust and Amended Bylaws, copies of which have been filed with the SEC and
are incorporated by reference herein.
GENERAL
Our Declaration of Trust authorizes us to issue up to 50,000,000 common
shares and up to 5,000,000 preferred shares. As permitted by Maryland law, our
Declaration of Trust permits the Board of Trustees, without shareholder
approval, to amend the Declaration of Trust from time to time to increase or
decrease the aggregate number of shares or the number of shares of any class
that we have authority to issue. Under Maryland law, a shareholder is not
personally liable for the obligations of a REIT solely as a result of his or her
status as a shareholder.
As of September 1, 2004, a total of 24,296,770 common shares (excluding
treasury shares but including the shares being sold by the selling shareholders
under this prospectus) and 2,300,000 Series A Preferred Shares were outstanding.
The transfer agent and registrar for our shares is UMB Bank, n.a.
COMMON SHARES
Holders of our common shares have the following rights:
o Dividends - Common shareholders have the right to receive dividends
when and as declared by the Board of Trustees
o Voting Rights - Common shareholders have the right to vote their
shares. Each common share has one vote on all matters submitted for
shareholder approval, including the election of trustees. We do not
have cumulative voting in the election of trustees, which means the
holders of a majority of our outstanding common shares can elect all
of the trustees nominated for election and the holders of the
remaining common shares will not be able to elect any trustees.
o Liquidation Rights - If we liquidate, holders of common shares are
entitled to receive all remaining assets available for distribution to
common shareholders after satisfaction of our liabilities and the
preferential rights of the Series A Preferred Shares and any
additional preferred shares we may issue in the future.
Our outstanding common shares are fully paid and nonassessable. Common
shareholders do not have any preemptive, conversion or redemption rights.
SELLING SHAREHOLDERS
We have registered for resale a total of 857,145 common shares covered by
this prospectus on behalf of the selling shareholders.
The selling shareholders are owners of interests in the Property Sellers or
members of their immediate family. We acquired the Gulf States Properties,
consisting of the Elmwood Palace 20, Clearview Palace 12, Hammond Palace 10,
Houma Palace 10 and West Bank Palace 16 theatres located in the New Orleans
metropolitan area, from the Property Sellers in 2002. A portion of the purchase
price for the Gulf States Properties was paid in the form of common and
preferred membership interests in EPT Gulf States, LLC (referred to in this
prospectus as EPTGS), the entity we formed to acquire the Gulf States
Properties. The shares being sold by the selling shareholders under this
prospectus were issued by us to the selling shareholders on behalf of the
Property Sellers in exchange for the Property Sellers' common and preferred
membership interests in EPTGs at an exchange rate of $17.50 per share, which was
established at the time we acquired the Gulf States Properties. We entered into
a Registration Rights Agreement with the Property Sellers at the time we
acquired the Gulf States Properties, under which we agreed to register the
shares for resale by the Property Sellers or their transferees.
Based upon information provided to us by the selling shareholders, the
following table lists the names of the selling shareholders, the number of
common shares owned by them prior to this offering and the percentage of our
outstanding common shares those shares represented before this offering, the
number of common shares offered by this prospectus and the number of common
shares that will be owned by each selling shareholder after the sale of the
shares, and the percentage of our outstanding common shares to be owned by the
selling shareholders upon completion of this offering, assuming all of the
shares offered hereby are sold. We do not know how long the selling shareholders
will hold the shares before selling them or if they will sell them. We currently
have no agreements, arrangements or understandings with the selling shareholders
regarding the sale of any of the shares (other than the Registration Rights
Agreement).
Shares Beneficially
Maximum Owned After
Number of Completion of the
Shares Beneficially Shares Offering (assuming all
Owned Prior to the being shares offered hereby
Offering Offered are sold)
------------------------- ------------ --------------------------
Name Number Percent(1) Number Percent
---- ------------ ------------ ------------ -------------
T. George Solomon Jr. Alaska Asset 180,000 * 180,000 0 0%
Preservation Trust
Gary N. Solomon 180,000 * 180,000 0 0%
Glenn J. Solomon 240,000 * 240,000 0 0%
Gloria Solomon Carter 85,715 * 85,715 0 0%
Gladys Solomon Brown 85,715 * 85,715 0 0%
Glenda Solomon Brown 85,715 * 85,715 0 0%
* Less than one percent.
(1) Based on 24,926,770 common shares outstanding (excluding treasury shares but
including the shares held by the selling shareholders) as of September 1, 2004.
When we refer to the "selling shareholders" in this prospectus, we mean the
term to include pledgees, donees, transferees or other successors in interest
selling shares they acquire after the date of this prospectus from any other
selling shareholder as a pledge, gift or other non-sale related transfer.
PLAN OF DISTRIBUTION
We have registered the shares to permit the selling shareholders to resell
them from time to time after the date of this prospectus. We will not receive
any of the proceeds from the sale of shares by the selling shareholders. We will
pay the fees and expenses incurred in registering the shares. These fees and
expenses include registration and filing fees, printing expenses and fees and
disbursements of our counsel and independent accountants. The selling
shareholders will be solely responsible for all fees and expenses of any
separate counsel retained by them and all underwriting discounts and commissions
and agents' commissions, if any.
One or more of the selling shareholders may, from time to time, sell all or
part of the shares, on terms determined at the time such shares are offered for
sale, to or through underwriters, directly to other purchasers or
broker-dealers, or through broker-dealers or other persons acting as agents, or
through a combination of these methods. The distribution of the shares may be
made from time to time in one or more transactions at a fixed price or prices
(which may be changed), at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices. To the
extent required, if the selling shareholders engage an underwriter for the
purpose of offering shares, the public offering price, the terms on which shares
are sold, the names of any participating broker-dealer, agent or underwriter,
any applicable commission or discount, and other facts material to the
transaction with respect to a particular offering will be described in an
accompanying prospectus supplement.
Any underwritten offering may be on a "best efforts" or a "firm commitment"
basis. Underwriters may receive compensation from one or more of the selling
shareholders or from the purchasers of shares for whom they act as agents, in
the form of discounts, concessions or commissions. Underwriters may sell shares
to or through agents or dealers, and those agents and dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchaser for whom they may act as agents.
In connection with any sale by selling shareholders to or through
broker-dealers or other persons acting as agents, any such broker-dealer or
other agent may act as agent for one or more of the selling shareholders or may
purchase from one or more of the selling shareholders all or a portion of the
shares as principal. Any direct sale to purchasers, and any sale to or through
broker-dealers or other agents, may be made by a variety of methods, including:
o block transactions in which a broker-dealer may sell all or a portion
of the shares as agent but may position and resell all or a portion of
the block as principal to facilitate the transaction
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account
o a special offering, an exchange distribution or a secondary
distribution in accordance with applicable NYSE rules
o ordinary brokerage transactions or transactions in which a
broker-dealer solicits purchasers
o sales "at the market" to or through a market maker or into an existing
trading market, on an exchange or otherwise
o sales in other ways not involving market makers or established trading
markets, including direct sales to purchasers
o in any combination of the above or by any other legally available
means
Such sales may be made on the NYSE or other exchanges on which the shares are
then traded, in the over-the-counter market, in negotiated transactions, through
put or call options transactions relating to the shares, through short sales of
shares, or otherwise. In effecting sales, broker-dealers engaged by one or more
of the selling shareholders may arrange for other broker-dealers to participate.
Brokers or dealers, or other agents, may receive compensation in the form
of discounts, concessions or commissions from the selling shareholders and/or
the purchasers of shares for whom such broker-dealers or other agents may act as
agents
or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer or other agent might be in excess of customary
commissions), in amounts that may be negotiated immediately prior to any sale.
In connection with the sales of shares, the selling shareholders may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares, short and deliver the shares to close out such short
positions, or loan or pledge the shares to broker-dealers that in turn may sell
the shares.
If a material arrangement with any underwriter, broker, dealer or other
agent is entered into for the sale of any shares through a secondary
distribution or a purchase by a broker or dealer, or if other material changes
are made in the plan of distribution of the shares, a prospectus supplement will
be filed, if necessary, under the Securities Act disclosing the material terms
and conditions of such arrangement.
If so indicated in any applicable prospectus supplement, broker-dealers or
other persons acting as agents may be authorized to solicit offers by certain
institutions to purchase shares pursuant to contracts providing for payment and
delivery on a future date. Such contracts may be made with commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions, and other institutions, but in all
cases such institutions must be approved by the selling shareholders. The
obligations of any purchaser under any such contract will not be subject to any
conditions except that (i) the purchase of the shares shall not at any time of
delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject and (ii) if the shares are also being sold to underwriters,
the selling shareholders shall have sold to such underwriters the shares not
sold for delayed delivery. The underwriters, dealers, broker-dealers and other
persons acting as agents will not have any responsibility in respect of the
validity or performance of such contract.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling shareholders and any underwriter,
broker-dealer or agent regarding the sale of the shares by the selling
shareholders. Selling shareholders may decide to sell only a portion of the
shares offered by them pursuant to this prospectus or may decide not to sell any
shares offered by them pursuant to this prospectus. In addition, any selling
shareholders may transfer, devise or give the shares by other means not
described in this prospectus. Any shares covered by this prospectus that qualify
for sale pursuant to Rule 144 or Rule 144A under the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling shareholders may from time to time pledge or grant a security
interest in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares from time to time under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable rule
amending the list of selling shareholders to include the pledgee, transferee or
other successor in interest as a selling shareholder under this prospectus.
The selling shareholders and any underwriters, broker-dealers or agents
participating in the distribution of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of shares by the selling shareholders and any commissions or other
compensation received by any such underwriters, broker-dealers or agents may be
deemed to be underwriting commissions under the Securities Act. If any selling
shareholder were deemed to be an underwriter, that selling shareholder may be
subject to statutory liabilities, including, but not limited to, those under
Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange
Act.
We have agreed to indemnify the selling shareholders (and certain related
persons) against specified liabilities, including certain potential liabilities
arising under the Securities Act, or to contribute to payments the selling
shareholders may be required to make in respect thereof. We also have agreed, if
so requested, to provide similar indemnification and contribution undertakings
with respect to any underwriter, broker, dealer or other agent that participates
in any distribution of the shares. The selling shareholders also may agree to
similar indemnification and contribution undertakings with respect to any such
underwriter, broker, dealer or other agent. Each selling shareholder has
severally agreed to indemnify us and our trustees, officers and employees and
each person who "controls" us (within the meaning of the Securities Act) against
specified liabilities relating to the written information provided by it or on
its behalf for use in the registration statement of which this prospectus is a
part, this prospectus or any related prospectuses, supplements or amendments, or
to contribute to the payments we, our trustees, officers, employees or control
persons may be required to make in respect thereof. The liability of any selling
shareholder for indemnification or contribution is limited to the amount of
proceeds (net of expenses and underwriting discounts and commissions) received
by such selling shareholder in the offering giving rise to such liability.
Compliance with any applicable prospectus delivery requirements of the
Securities Act may include delivery through the facilities of the NYSE pursuant
to Rule 153 under the Securities Act.
The selling shareholders and any other person participating in the
distribution will be subject to the applicable provisions of the Exchange Act
and the rules and regulations under the Exchange Act, including, without
limitation, Regulation M, which may limit the timing of purchases and sales of
any of the shares by a selling shareholder and any other relevant person.
Furthermore, Regulation M may restrict the ability of any person engaged in the
distribution of the shares to engage in market-making activities with respect to
the shares. All of the above may affect the marketability of the shares and the
ability of any person or entity to engage in market-making activities with
respect to the shares.
Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed brokers or dealers. In
addition, in certain states the shares may not be sold unless the shares have
been registered or qualified for sale in the state or an exemption from
registration or qualification is available and complied with. Each selling
shareholder should consult its counsel regarding the application of state
securities law in connection with sales of the shares.
LEGAL OPINIONS
Sonnenschein Nath & Rosenthal LLP will issue an opinion about the validity
of the shares and EPR's qualification and taxation as a REIT under the Code. In
addition, the description of EPR's taxation and qualification as a REIT under
the caption "U.S. Federal Income Tax Consequences" is based upon the opinion of
Sonnenschein Nath & Rosenthal LLP.
EXPERTS
The consolidated financial statements and schedules of Entertainment
Properties Trust as of and for the years ended December 31, 2003 and 2002 have
been incorporated by reference in this prospectus and in the registration
statement in reliance upon the report of KPMG LLP, independent registered public
accounting firm, incorporated by reference herein and upon the authority of that
firm as experts in accounting and auditing.
Ernst & Young LLP, independent registered public accounting firm, have
audited our consolidated financial statements for the year ended December 31,
2001 included in our annual report on Form 10-K for the year ended December 31,
2003, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. These financial
statements for the year ended December 31, 2001 are incorporated by reference in
this prospectus and in the registration statement in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
The audited historical statement of revenues and certain operating expenses
of New Roc Associates, L.P. for the year ended December 31, 2002 has been
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of BDO Seidman, LLP, independent registered public
accounting firm, incorporated by reference herein and upon the authority of that
firm as experts in accounting and auditing.
The audited historical statements of revenues and certain operating
expenses of Courtney Square Limited Partnership, Oakville Centrum Limited
Partnership, Whitby Centrum Limited Partnership and Kanata Centrum Limited
Partnership for the year ended December 31, 2003 have been incorporated by
reference in this prospectus and in the registration statement in reliance upon
the report of BDO Dunwoody LLP, independent registered public accounting firm,
incorporated by reference herein and upon the authority of that firm as experts
in accounting and auditing.