SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 27, 2003
ENTERTAINMENT PROPERTIES TRUST
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 1-13561 43-1790877
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation) Identification Number)
30 West Pershing Road, Suite 201, Kansas City, Missouri 64108
(Address of Principal Executive Office) (Zip Code)
(816) 472-1700
Registrant's telephone number, including area code:
Not Applicable
(Former name or former address if changed since last report)
TABLE OF CONTENTS
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.01
EXHIBIT 10.02
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Joint Venture Interest in NewRoc Associates, L.P.
On October 27, 2003 (the "Initial Closing Date"), we acquired, through our
wholly-owned subsidiaries, the General Partnership Interest ("GP Interest") and
Class A Limited Partnership Interest ("Class A Interest") in New Roc Associates,
L.P., a New York limited partnership (the "Partnership") pursuant to a Limited
Partnership Interest Purchase Agreement dated October 27, 2003 (the "Purchase
Agreement"). The Partnership, which has a term expiring on December 31, 2040,
owns a 447,000 square foot multi-tenant retail and entertainment complex in
downtown New Rochelle, Westchester County, New York called New Roc City (the
"Property"). We acquired the GP Interest and Class A Interest from affiliates of
Mr. Louis R. Cappelli, the developer of the Property. (For purposes of this
report, Mr. Cappelli and his affiliates are collectively referred to as the
"Developer.") The Developer, who is not affiliated with EPR, will retain the
Class B Limited Partnership Interest ("Class B Interest") in the Partnership and
be the sole Class B Partner.
Our total acquisition cost for the GP Interest and Class A Interest was
approximately $95 million (consisting of approximately $25 million in cash and
approximately $70 million in senior mortgage indebtedness secured by the
Property that will be consolidated on our balance sheet) plus acquisition costs.
Opened in 1999, the Property has approximately 451,000 rentable square feet and
includes an 18 screen Regal Cinemas megaplex movie theatre and IMAX theatre
which consistently ranks as one of the 50 highest grossing movie theatres in the
United States, a sports and recreation complex featuring an NHL-sized hockey
rink, a 17-lane bowling center, billiards and a family entertainment center, a
71,000 square foot grocery store, and a Bally's fitness center, restaurants and
retail stores (see "Description of the Property," below).
We acquired a 49% Limited Partnership Interest on the Initial Closing Date. The
General Partner has a 1% Interest in the Partnership, and the Class B Partner
currently has a 50% Interest. Upon the earlier of (i) the consent of the
Partnership's senior lender to the transaction, or (ii) the refinancing of the
senior loan which results in a principal balance of $66,000,000 (the "Final
Closing Date"), our Class A Interest will increase to 70.4% for no additional
consideration, and the Class B Partner's Interest will be reduced to 28.6%.
The Property secures a senior mortgage loan in the current principal amount of
$66,000,000 held by an institutional real estate lender (the "Senior Loan"). The
Senior Loan bears interest at the rate of one-month LIBOR plus 2.5% and matures
on April 9, 2004 with three one-year renewal options. We intend to pursue a
refinancing of the Senior Loan in the near future.
The cash used by us in making the investment was derived from the proceeds of
our public common share offering which closed on September 23, 2003.
The Class B Partner will have the right to exchange its Interest in the
Partnership for common shares of EPR or the cash value of those shares, at our
option, at any time after the third anniversary of the Final Closing Date, so
long as the net operating income of the Property ("Property NOI") during the
preceding 12 months exceeds $8,900,000, and certain other conditions are met.
The number of EPR shares issuable to the Class B Partner would equal 75% of the
Class B Partner's capital in the Partnership (up to 100% to the extent Property
NOI is between $8,900,000 and $10,000,000) divided by the greater of our book
value per share or the average closing price of our common shares for the 30
trading day period prior to the exercise of the conversion right. We will have
the right, at our option, to pay the Class B Partner the cash value of those
shares. The Class B Partner will have demand registration rights at our expense
with respect to any shares issued upon exercise of the conversion right, until
and except to the extent the Class B Partner is able to sell the shares under
SEC Rule 144. We will have the right to impose a blackout on the registration
under certain conditions. The Class B Partner would also have piggyback
registration rights with respect to the shares.
The Property will be managed by an affiliate of the Developer (the "Property
Manager") pursuant to a new Management Agreement under which the Property
Manager will receive a monthly management fee equal to 2.5% of the aggregate
revenues received from tenants at the Property, including fixed rents,
percentage rents and overage rents. The Property Manager will hire all employees
required to manage and operate the Property and provide all services required in
the leasing, maintenance and operation of the Property. The expenses of owning,
leasing, maintaining and operating the Property will be paid by the Partnership.
The Property Manager will be required to reimburse the Partnership, subject to
certain limitations, for amounts by which the Property's actual annual real
estate taxes and common area maintenance expenses exceed the recoveries for
those items paid by tenants under the leases ("CAM slippage").
Description of the Property
The Property is a multi-purpose urban retail and entertainment complex in New
Rochelle, New York, a community in Westchester County approximately 25 miles
from Manhattan. The Property is in downtown New Rochelle, with convenient access
to Interstate 95. Approximately 928,000 people live in Westchester County and
221,000 live in Southeastern Westchester County where the Property is located.
The Property is part of a larger mixed use development owned by the Developer
that includes a Marriott Residence Inn and a 100-unit apartment complex, and is
served by a multi-level fee access parking facility with a total of 2,350
spaces.
The Partnership holds the ground leasehold interest in the Property pursuant to
a master ground lease agreement with the City of New Rochelle Industrial
Development Authority and does not own the fee interest in the Property, but
holds the option to acquire fee simple title to the Property for a purchase
price of $1.00.
The Property is approximately 96% leased to 15 space tenants. The average
remaining lease life of all the tenant leases is 11 years.
Five of the tenants, New Roc Bowling, New Roc Rack and Cue, New Roc Family
Entertainment Center, New Roc Ice and New Roc Speedway (the "Developer Tenants")
are affiliates of the Developer. The Developer Tenants occupy an aggregate of
159,500 rentable square feet (35.7% of total rentable square feet) on terms
(including lease rates) generally comparable to the third-party tenants.
Approximately 75% of the lease obligations of the Developer Tenants are bonded
by an investment-grade surety.
The Property has been well maintained and managed, with attractive retail spaces
and common areas. We do not anticipate making any significant repairs or
improvements to the Property over the next few years. A Phase I environmental
assessment completed in connection with our purchase of the Partnership Interest
found no hazardous conditions. We believe the Property is adequately covered by
insurance.
For federal income tax purposes, the Property will have a depreciable basis of
approximately $96.5 million. When we calculate depreciation expense for the
Partnership for income tax purposes, we will use the straight-line method. We
will depreciate the building and improvements based upon a useful life of 40
years.
The Property was appraised in March 2002 by a third-party appraiser at $96
million. We based our investment in the Partnership on an internal property
valuation of $105 million. The amount of consideration paid for our Interest in
the Partnership was determined in accordance with the principles used by us in
all of our real property investments. We considered a number of factors,
including the performance of the theatre and other tenants, the terms of the
existing tenant leases, tenant mix, the amount and timing of cash flows from the
Property, the age, condition, attractiveness and quality of the Property,
demographic and economic conditions and trends in the surrounding area, the
management of the Property, the quality of the Developer, the anticipated
residual value of the Property, the terms of the mortgage financing encumbering
the Property and the risks of owning the Property. We also considered the
following additional factors:
o the sources of revenue from tenant leases at the Property, including
competitive conditions in the Westchester County and New Rochelle real
estate markets, comparative rentals for comparable properties in that
geographic area, occupancy rates at the Property versus occupancy
rates at comparable properties in that geographic area, the
performance of lease terms by tenants, and the Partnership's ability
to receive periodic increases in base rent and payments of percentage
rent under the tenant leases
o the expenses of owning and operating the Property, including but not
limited to debt service, utility rates, real estate taxes and
maintenance expenses
o the operating data contained in this report
The aggregate annual base rentals paid by tenants at the Property is
approximately $8,455,000. Four tenants, the Regal Cinemas Theatres, New Roc
Family Entertainment Center, New Roc Ice and Stop & Shop grocery store, each
individually occupies more than 10% of the rentable square feet at the Property,
representing an aggregate of 67.85% of the total rentable square feet. These
tenants pay approximately $5,937,500 in aggregate annual base rentals. Three of
those tenants' leases expire in 2012 and two of the leases expire in 2019.
The leases for five of the 15 tenants call for payments of percentage rent in
addition to base rent.
Each tenant pays a common area maintenance charge to cover its proportionate
share of real estate taxes, insurance and common area maintenance costs at the
Property.
Nine of the leases expire during the next 10 years, one representing 0.4% of
gross annual rentals in 2007, three representing 4.3% of gross annual rentals in
2009, one representing 5.1% of gross annual rentals in 2010 and four
representing 18.1% of gross annual rentals in 2012.
We are not aware of any material factors relating to the Property other than
those discussed in this report that would cause the historical financial
information to be filed as an amendment to this report to be not necessarily
indicative of future results.
Item 7. FINANCIAL STATEMENTS; PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired
It is not practicable to provide the required financial
statements at this time. The financial statements will be filed
as an amendment to this report no later than 60 days after the
date of filing of this report.
(c) Exhibits
10.1 Limited Partnership Interest Purchase Agreement dated
October 27, 2003 among EPT New Roc GP, Inc., EPT New Roc,
LLC, LRC Industries, Inc., DKH - New Roc Associates, L.P.,
LC New Roc Inc. and New Roc Associates, L.P.
10.2 Second Amended and Restated Agreement of Limited Partnership
of New Roc Associates, L.P.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENTERTAINMENT PROPERTIES TRUST
Date: November 11, 2003 By /S/ DAVID M. BRAIN
-------------------------------------
David M. Brain
President and Chief Executive Officer