Edgar Filing: ENTERTAINMENT PROPERTIES TRUST

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13561

ENTERTAINMENT PROPERTIES TRUST

(Exact name of registrant as specified in its charter)

Maryland

43-1790877

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

909 Walnut, Suite 200

Kansas City, Missouri

64106

(Address of principal executive offices)

(Zip Code)

(816) 472-1700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

At November 2, 2011, there were 46,725,636 common shares of beneficial interest outstanding.

CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

With the exception of historical information, certain statements contained or incorporated by reference herein may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as those pertaining to our acquisition or disposition of properties, our capital resources, future expenditures for development projects, 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,” “expects,” “pipeline,” “anticipates,” “estimates,” “offers,” “plans,” “would,” “may” or other similar expressions or other comparable terms or discussions of strategy, plans or intentions in this Quarterly Report on Form 10-Q. In addition, references to our budgeted amounts and guidance are forward looking statements. Factors that could materially and adversely affect us include, but are not limited to, the factors listed below:

•

General international, national, regional and local business and economic conditions;

•

Failure of current governmental efforts to stimulate the economy;

•

The downturn in the credit markets;

•

We have made a significant investment in a planned casino and resort development that may not be completed;

•

The failure of a bank to fund a request by us to borrow money;

•

Failure of banks in which we have deposited funds;

•

Defaults in the performance of lease terms by our tenants;

•

Defaults by our customers and counterparties on their obligations owed to us;

•

A borrower’s bankruptcy or default;

•

The obsolescence of older multiplex theatres owned by some of our tenants;

•

Risks of our tenants operating in the entertainment industry;

•

Our ability to compete effectively;

•

A significant number of our megaplex theatre properties are leased by a single tenant;

•

A single tenant leases or is the mortgagor of all our ski area investments;

•

A significant number of our charter schools are leased by a single tenant;

•

Risks associated with use of leverage to acquire properties;

•

Financing arrangements that require lump-sum payments;

•

Our ability to sustain the rate of growth we have had in recent years;

•

Our ability to raise capital;

•

Covenants in our debt instruments that limit our ability to take certain actions;

•

Risks of acquiring and developing properties and real estate companies;

•

The lack of diversification of our investment portfolio;

•

Our continued qualification as a REIT;

•

The ability of our subsidiaries to satisfy their obligations;

•

Financing arrangements that expose us to funding or purchase risks;

•

We have a limited number of employees and the loss of personnel could harm operations;

•

Fluctuations in the value of real estate income and investments;

•

Risks relating to real estate ownership, leasing and development, for example local conditions such as an oversupply of space or a reduction in demand for real estate in the area, competition from other available space, whether tenants and users such as customers of our tenants consider a property attractive, changes in real estate taxes and other expenses, changes in market rental rates, the timing and costs associated with property improvements and rentals, changes in taxation or zoning laws or other governmental regulation, whether we are able to pass some or all of any increased operating costs through to tenants, and how well we manage our properties;

•

Our ability to secure adequate insurance and risk of potential uninsured losses, including from natural disasters;

•

Risks involved in joint ventures;

•

Risks in leasing multi-tenant properties;

•

A failure to comply with the Americans with Disabilities Act or other laws;

•

Risks of environmental liability;

•

Our real estate investments are relatively illiquid;

•

We own assets in foreign countries;

•

Risks associated with owning or financing properties for which the tenant’s or mortgagor’s operations may be impacted by weather conditions and climate change;

•

Risks associated with the ownership of vineyards;

•

Our ability to pay distributions in cash or at current rates;

•

Fluctuations in interest rates;

•

Fluctuations in the market prices for our shares;

•

Certain limits on change in control imposed under law and by our Declaration of Trust and Bylaws;

•

Policy changes obtained without the approval of our shareholders;

•

Equity issuances could dilute the value of our shares;

•

Risks associated with changes in the Canadian exchange rate; and

•

Changes in laws and regulations, including tax laws and regulations.

These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2011.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

TABLE OF CONTENTS


		Page
PART I			5

Item 1.	Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64
Item 4.	Controls and Procedures		65

PART II			66

Item 1.	Legal Proceedings		66
Item 1A.	Risk Factors		66
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		66
Item 3.	Defaults Upon Senior Securities		66
Item 4.	(Removed and Reserved)		66
Item 5.	Other Information.		66
Item 6.	Exhibits		67

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

ENTERTAINMENT PROPERTIES TRUST

Consolidated Balance Sheets

(Dollars in thousands except share data)


	September 30, 2011			December 31, 2010
	(Unaudited)
Assets
Rental properties, net of accumulated depreciation of $322,736 and $296,784 at September 30, 2011 and December 31, 2010, respectively	$	1,798,947		$	2,020,191
Rental properties held for sale, net		4,696			6,432
Land held for development		184,457			184,457
Property under development		15,075			5,967
Mortgage notes and related accrued interest receivable, net		315,204			305,404
Investments in direct financing leases, net		253,344			226,433
Investment in joint ventures		24,667			22,010
Cash and cash equivalents		14,302			11,776
Restricted cash		28,314			16,279
Intangible assets, net		4,670			35,644
Deferred financing costs, net		16,768			20,371
Accounts receivable, net		34,389			39,814
Notes and related accrued interest receivable, net		5,055			5,127
Other assets		26,009			23,515

Total assets	$	2,725,897		$	2,923,420

Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	38,029		$	56,488
Common dividends payable		32,707			30,253
Preferred dividends payable		6,002			7,551
Unearned rents and interest		13,599			6,691
Long-term debt		1,138,839			1,191,179

Total liabilities		1,229,176			1,292,162
Equity:
Common shares, $.01 par value; 75,000,000 shares authorized; and 48,060,470 and 47,769,422 shares issued at September 30, 2011 and December 31, 2010, respectively		480			477
Preferred shares, $.01 par value; 25,000,000 shares authorized:
0 and 3,200,000 Series B shares issued at September 30, 2011 and December 31, 2010, respectively; liquidation preference of $80,000,000		—			32
5,400,000 Series C convertible shares issued at September 30, 2011 and December 31, 2010; liquidation preference of $135,000,000		54			54
4,600,000 Series D shares issued at September 30, 2011 and December 31, 2010; liquidation preference of $115,000,000		46			46
3,450,000 Series E convertible shares issued at September 30, 2011 and December 31, 2010; liquidation preference of $86,250,000		35			35
Additional paid-in-capital		1,717,702			1,785,371
Treasury shares at cost: 1,335,879 and 1,226,472 common shares at September 30, 2011 and December 31, 2010, respectively		(44,834	)		(39,762	)
Accumulated other comprehensive income		22,699			38,842
Distributions in excess of net income		(227,493	)		(181,856	)

Entertainment Properties Trust shareholders’ equity		1,468,689			1,603,239

Noncontrolling interests		28,032			28,019

Equity		1,496,721			1,631,258

Total liabilities and equity	$	2,725,897		$	2,923,420

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Rental revenue	$	56,849		$	56,795		$	168,255		$	163,338
Tenant reimbursements		4,419			4,153			13,596			12,443
Other income		165			235			320			485
Mortgage and other financing income		14,562			13,295			41,881			38,900

Total revenue		75,995			74,478			224,052			215,166

Property operating expense		5,960			6,675			18,709			17,975
Other expense		629			340			1,823			716
General and administrative expense		4,555			4,076			15,127			13,795
Costs associated with loan refinancing		—			—			6,163			11,383
Interest expense, net		17,911			19,227			54,021			53,067
Transaction costs		148			11			1,497			376
Provision for loan losses		—			—			—			700
Impairment charges		—			—			27,115			—
Depreciation and amortization		12,036			11,582			35,887			33,457

Income before equity in income from joint ventures and discontinued operations		34,756			32,567			63,710			83,697
Equity in income from joint ventures		676			706			2,231			1,362

Income from continuing operations	$	35,432		$	33,273		$	65,941		$	85,059

Discontinued operations:
Income (loss) from discontinued operations		115			1,572			1,990			(6,640	)
Impairment charges		—			—			(8,941	)		—
Gain on acquisition		—			—			—			8,468
Transaction costs		—			—			—			(7,270	)
Gain (loss) on sale of real estate		16			198			18,309			(736	)

Net income		35,563			35,043			77,299			78,881
Add: Net loss (income) attributable to noncontrolling interests		(11	)		(34	)		(13	)		1,791

Net income attributable to Entertainment Properties Trust		35,552			35,009			77,286			80,672
Preferred dividend requirements		(7,034	)		(7,552	)		(22,138	)		(22,655	)
Series B preferred share redemption costs		(2,769	)		—			(2,769	)		—

Net income available to common shareholders of Entertainment Properties Trust	$	25,749		$	27,457		$	52,379		$	58,017

Per share data attributable to Entertainment Properties Trust common shareholders:
Basic earnings per share data:
Income from continuing operations	$	0.55		$	0.55		$	0.88		$	1.39
Income (loss) from discontinued operations		—			0.04			0.24			(0.09	)

Net income available to common shareholders	$	0.55		$	0.59		$	1.12		$	1.30

Diluted earnings per share data:
Income from continuing operations	$	0.55		$	0.55		$	0.88		$	1.38
Income (loss) from discontinued operations		—			0.03			0.24			(0.09	)

Net income available to common shareholders	$	0.55		$	0.58		$	1.12		$	1.29

Shares used for computation (in thousands):
Basic		46,680			46,511			46,611			44,757
Diluted		46,918			46,809			46,874			45,037

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST

Consolidated Statement of Changes in Equity

Nine Months Ended September 30, 2011

(Unaudited)

(Dollars in thousands)


	Entertainment Properties Trust Shareholders
	Common Stock				Preferred Stock						Additional paid-in capital			Treasury shares			Accumulated other comprehensive income			Distributions in excess of net income			Noncontrolling Interests		Total
	Shares		Par		Shares			Par			Additional paid-in capital			Treasury shares			Accumulated other comprehensive income			Distributions in excess of net income			Noncontrolling Interests		Total
Balance at December 31, 2010		47,769,422	$	477		16,650,000		$	167		$	1,785,371		$	(39,762	)	$	38,842		$	(181,856	)	$	28,019	$	1,631,258
Restricted share units issued to Trustees		10,519		—		—			—			502			—			—			—			—		502
Issuance of nonvested shares, including nonvested shares issued for the payment of bonuses		137,020		1		—			—			1,967			—			—			—			—		1,968
Amortization of nonvested shares		—		—		—			—			3,178			—			—			—			—		3,178
Share option expense		—		—		—			—			562			—			—			—			—		562
Foreign currency translation adjustment		—		—		—			—			—			—			(2,679	)		—			—		(2,679	)
Foreign currency translation gain reclassified from accumulated other comprehensive income into earnings from the substantial liquidation of foreign net assets		—		—		—			—			—			—			(23,236	)		—			—		(23,236	)
Change in unrealized gain/loss on derivatives		—		—		—			—			—			—			5,186			—			—		5,186
Loss reclassified from accumulated other comprehensive income into earnings from termination of interest rate swaps		—		—		—			—			—			—			4,586			—			—		4,586
Net income		—		—		—			—			—			—			—			77,286			13		77,299
Purchase of 66,368 common shares for treasury		—		—		—			—			—			(3,070	)		—			—			—		(3,070	)
Issuances of common shares		8,313		1		—			—			384			—			—			—			—		385
Redemption of Series B preferred shares		—		—		(3,200,000	)		(32	)		(77,229	)		—			—			(2,769	)		—		(80,030	)
Stock option exercises, net		135,196		1		—			—			2,967			(2,002	)		—			—			—		966
Dividends to common and preferred shareholders		—		—		—			—			—			—			—			(120,154	)		—		(120,154	)

Balance at September 30, 2011		48,060,470	$	480		13,450,000		$	135		$	1,717,702		$	(44,834	)	$	22,699		$	(227,493	)	$	28,032	$	1,496,721

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net income	$	35,563		$	35,043		$	77,299		$	78,881

Other comprehensive income:
Foreign currency translation adjustment		(12,237	)		13,939			(2,679	)		7,090
Change in unrealized gain (loss) on derivatives		9,032			(5,139	)		5,186			(4,738	)

Comprehensive income		32,358			43,843			79,806			81,233
Comprehensive loss (income) attributable to the noncontrolling interests		(11	)		(34	)		(13	)		1,791

Comprehensive income attributable to Entertainment Properties Trust	$	32,347		$	43,809		$	79,793		$	83,024

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Nine Months Ended September 30,
	2011			2010
Operating activities:
Net income	$	77,299		$	78,881
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—			700
Non-cash impairment charges		27,115			—
Loss (income) from discontinued operations		(11,358	)		6,178
Costs associated with loan refinancing (non-cash portion)		1,759			3,067
Equity in income from joint ventures		(2,231	)		(1,362	)
Distributions from joint ventures		2,176			1,651
Depreciation and amortization		35,887			33,457
Amortization of deferred financing costs		2,821			3,346
Share-based compensation expense to management and trustees		4,211			3,522
Decrease (increase) in restricted cash		1,225			(478	)
Increase in mortgage notes accrued interest receivable		(410	)		(828	)
Decrease (increase) in accounts receivable, net		848			(3,006	)
Decrease in notes receivable accrued interest		72			28
Increase in direct financing lease receivable		(3,795	)		(3,504	)
Increase in other assets		(2,565	)		(3,539	)
Increase (decrease) in accounts payable and accrued liabilities		(1,434	)		5,438
Decrease in unearned rents and interest		(124	)		(622	)

Net operating cash provided by continuing operations		131,496			122,929
Net operating cash provided by discontinued operations		3,955			4,211

Net cash provided by operating activities		135,451			127,140

Investing activities:
Acquisition of rental properties and other assets		(46,427	)		(129,043	)
Proceeds from sale of real estate		1,700			—
Investment in unconsolidated joint ventures		(3,245	)		(15,647	)
Investment in mortgage notes receivable		(9,390	)		(5,247	)
Cash paid related to Cappelli settlement		—			(4,586	)
Investment in direct financing leases, net		(2,118	)		(51,833	)
Additions to properties under development		(44,230	)		(3,172	)

Net cash used by investing activities of continuing operations		(103,710	)		(209,528	)
Net cash used by other investing activities of discontinued operations		(58	)		(112,312	)
Net proceeds from sale of real estate from discontinued operations		224,912			6,301

Net cash provided (used) by investing activities		121,144			(315,539	)

Financing activities:
Proceeds from long-term debt facilities		328,000			740,225
Principal payments on long-term debt		(379,428	)		(572,007	)
Deferred financing fees paid		(1,002	)		(11,579	)
Redemption of preferred shares		(80,030	)		—
Net proceeds from issuance of common shares		195			141,095
Impact of stock option exercises, net		966			(982	)
Purchase of common shares for treasury		(3,070	)		(2,182	)
Contribution paid from noncontrolling interests		—			11
Dividends paid to shareholders		(119,164	)		(108,549	)

Net cash provided (used) by financing activities of continuing operations		(253,533	)		186,032
Net cash used by financing activities of discontinued operations		—			(6,285	)

Net cash provided (used) by financing activities		(253,533	)		179,747
Effect of exchange rate changes on cash		(536	)		374

Net increase (decrease) in cash and cash equivalents		2,526			(8,278	)
Cash and cash equivalents at beginning of the period		11,776			23,138

Cash and cash equivalents at end of the period	$	14,302		$	14,860

Supplemental information continued on next page.

ENTERTAINMENT PROPERTIES TRUST

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Nine Months Ended September 30,
	2011			2010
Supplemental schedule of non-cash activity:
Transfer of property under development to rental property	$	20,529		$	3,717
Transfer of property under development to investments in direct financing leases	$	14,571		$	—
Acquisition of real estate in exchange for assumption of debt at fair value	$	4,109		$	—
Issuance of nonvested shares and restricted share units at fair value, including nonvested shares issued for payment of bonuses	$	6,785		$	4,718
Receipt of 86,056 common shares in payment of shareholder loans	$	—		$	3,261
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	57,652		$	49,489
Cash paid (received) during the period for income taxes	$	(212	)	$	206

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST

Notes to Consolidated Financial Statements (Unaudited)

1. Organization

Description of Business

Entertainment Properties Trust (the Company) is a Maryland real estate investment trust (REIT) organized on August 29, 1997. The Company develops, owns, leases and finances megaplex theatres, entertainment retail centers (centers generally anchored by an entertainment component such as a megaplex theatre and containing other entertainment-related or retail properties), public charter schools and destination recreational and specialty properties. The Company’s properties are located in the United States and Canada.

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. In addition, operating results for the nine month period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The Company consolidates certain entities if it is deemed to be the primary beneficiary in a variable interest entity (VIE), as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic on Consolidation. The Topic on Consolidation requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This topic requires an ongoing reassessment of and eliminates the quantitative approach previously required for determining whether a company is the primary beneficiary and requires enhanced disclosures on variable interest entities. The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in the Consolidation Topic of the FASB ASC, or does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.

The Company reports its noncontrolling interests as required by the Consolidation Topic of the FASB ASC. Noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. The ownership interests in the subsidiary that are held by owners other than the parent are noncontrolling interests. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of income, revenues, expenses and net income or loss

from less-than-wholly-owned subsidiaries are reported at the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Consolidated statements of changes in shareholders’ equity are included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances for equity, noncontrolling interests and total equity. The Company does not have any redeemable noncontrolling interests under the scope of the Distinguishing Liabilities from Equity guidance of the FASB ASC.

The consolidated balance sheet as of December 31, 2010 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC) on March 1, 2011.

Revenue Recognition

Rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases. Base rent escalation on leases that are dependent upon increases in the Consumer Price Index (CPI) is recognized when known. In addition, most of the Company’s tenants are subject to additional rents if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents as well as participating interest for those mortgage agreements that contain similar such clauses are recognized at the time when specific triggering events occur as provided by the lease or mortgage agreements. Rental revenue included percentage rents of $1.0 million and $1.5 million for the nine months ended September 30, 2011 and 2010, respectively. Mortgage and other financing income included participating interest income of $0.4 million for the nine months ended September 30, 2011. No participating interest income was recognized for the nine months ended September 30, 2010. Lease termination fees are recognized when the related leases are canceled and the Company has no obligation to provide services to such former tenants. Termination fees of $1.1 million were recognized during the nine months ended September 30, 2011 of which $1.0 million has been classified within discontinued operations. See Note 16 for further details. No termination fees were recognized during the nine months ended September 30, 2010.

Direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values at the date of lease inception represent management’s initial estimates of fair value of the leased assets at the expiration of the lease, not to exceed original cost. Significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values. The Company evaluates on an annual basis (or more frequently if necessary) the collectability of its direct financing lease receivable and unguaranteed residual value to determine whether they are impaired. A direct financing lease receivable is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a direct financing lease receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable’s effective interest rate or to the fair value of the underlying collateral, less costs to sell, if such receivable is collateralized.

Rental Properties

Rental properties are carried at cost less accumulated depreciation. Costs incurred for the acquisition and development of the properties are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which generally are estimated to be 40 years for buildings and 3 to 25 years for furniture, fixtures and equipment. Tenant

improvements, including allowances, are depreciated over the shorter of the base term of the lease or the estimated useful life. Expenditures for ordinary maintenance and repairs are charged to operations in the period incurred. Significant renovations and improvements which improve or extend the useful life of the asset are capitalized and depreciated over their estimated useful life.

Management reviews a property for impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. The review of recoverability is based on an estimate of undiscounted future cash flows expected to result from its use and eventual disposition. If impairment exists due to the inability to recover the carrying value of the property, an impairment loss is recorded to the extent that the carrying value of the property exceeds its estimated fair value.

The Company evaluates the held-for-sale classification of its real estate each quarter. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less costs to sell. Assets are generally classified as held for sale once management has initiated an active program to market them for sale and has received a firm purchase commitment that is expected to close within one year. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported. On occasion, the Company will receive unsolicited offers from third parties to buy individual Company properties. Under these circumstances, the Company will classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.

Allowance for Doubtful Accounts

The Company makes quarterly estimates of the collectability of its accounts receivable related to base rents, tenant escalations (straight-line rents), reimbursements and other revenue or income. The Company specifically analyzes trends in accounts receivable, historical bad debts, customer credit worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of its allowance for doubtful accounts. In addition, when customers are in bankruptcy, the Company makes estimates of the expected recovery of pre-petition administrative and damage claims. These estimates have a direct impact on the Company’s net income.

Mortgage Notes and Other Notes Receivable

Mortgage notes and other notes receivable, including related accrued interest receivable, consist of loans originated by the Company and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other notes receivable are initially recorded at the amount advanced to the borrower and the Company defers certain loan origination and commitment fees, net of certain origination costs, and amortizes them over the term of the related loan. Interest income on performing loans is accrued as earned. The Company evaluates the collectability of both interest and principal of each of its loans to determine whether it is impaired. A loan is considered to be impaired when, based on current information and events, the Company determines that it is probable that it will be unable to collect all amounts due according to the existing contractual terms. An insignificant delay or shortfall in amounts of payments does not necessarily result in the loan being identified as impaired. When a loan is considered to be impaired, the amount of loss, if any, is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the Company’s interest in the underlying collateral, less costs to sell, if the loan is collateral dependent. For impaired loans, interest income is recognized on a cash basis, unless the Company determines based on the loan to estimated fair value ratio the loan

should be on the cost recovery method, and any cash payments received would then be reflected as a reduction of principal. Interest income recognition is recommenced if and when the impaired loan becomes contractually current and performance is demonstrated to be resumed.

Concentrations of Risk

American Multi-Cinema, Inc. (AMC) is the lessee of a substantial portion (36%) of the megaplex theatre rental properties held by the Company (including joint venture properties) at September 30, 2011 as a result of a series of sale leaseback transactions pertaining to a number of AMC megaplex theatres. A substantial portion of the Company’s total revenues (approximately $79.2 million or 35% and $79.9 million or 37% for the nine months ended September 30, 2011 and 2010, respectively) result from the revenue by AMC under the leases, or its parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC’s obligations under the leases. AMCE had total assets of $3.7 billion and $3.7 billion, total liabilities of $3.4 billion and $2.9 billion and total stockholders’ equity of $360 million and $761 million at March 31, 2011 and April 1, 2010, respectively. AMCE had a net loss of $122.9 million for the fifty-two weeks ended March 31, 2011, net earnings of $69.8 million for the fifty-two weeks ended April 1, 2010 and a net loss of $81.2 million for the fifty-two weeks ended April 2, 2009. In addition, AMCE had net earnings of $285 thousand for the thirteen weeks ended June 30, 2011. AMCE has publicly held debt and the foregoing financial information was reported in its consolidated financial information which is publicly available.

For the nine months ended September 30, 2011 and 2010, approximately $32.0 million or 14%, and $30.2 million or 14%, respectively, of total revenue was derived from the Company’s four entertainment retail centers in Ontario, Canada. The Company acquired Toronto Dundas Square, a 13-level entertainment retail center located in downtown Toronto, consisting of 330,000 square feet of net rentable area and a signage business consisting of 25,000 square feet of digital and static signage, on March 4, 2010. As further described in Note 5, on March 29, 2011, the Company sold this entertainment retail center and accordingly, the results of operations of the property have been classified within discontinued operations. The Company’s wholly owned subsidiaries that hold the four Canadian entertainment retail centers and third-party debt represent approximately $139.4 million or 9% of the Company’s net assets as of September 30, 2011. The Company’s wholly owned subsidiaries that hold the Canadian entertainment retail centers (including Toronto Dundas Square) and third-party debt represent approximately $355.2 million or 22% of the Company’s net assets as of December 31, 2010.

Share-Based Compensation

Share-based compensation to employees of the Company is determined pursuant to the Annual Incentive Program and the Long-Term Incentive Plan. Share-based compensation to non-employee Trustees of the Company is determined pursuant to the director compensation program. Prior to May 9, 2007, all common shares and options to purchase common shares (share options) were issued under the 1997 Share Incentive Plan. The 2007 Equity Incentive Plan was approved by shareholders at the May 9, 2007 annual meeting and this plan replaced the 1997 Share Incentive Plan.

Share based compensation expense consists of share option expense, amortization of nonvested share grants, and shares and share units issued to non-employee Trustees for payment of their annual retainers. Share based compensation is included in general and administrative expense in the accompanying consolidated statements of income, and totaled $4.2 million and $3.5 million for the nine months ended September 30, 2011 and 2010, respectively.

Share Options

Share options are granted to employees pursuant to the Long-Term Incentive Plan and to non-employee Trustees for their service to the Company. The fair value of share options granted is estimated at the date of grant using the Black-Scholes option pricing model. Share options granted to employees vest over a period of four to five years and share option expense for these options is recognized on a straight-line basis over the vesting period. Share options granted to non-employee Trustees vest immediately but may not be exercised for a period of one year from the grant date. Share option expense for non-employee Trustees is recognized on a straight-line basis over the year of service by the non-employee Trustees.

The expense related to share options included in the determination of net income for the nine months ended September 30, 2011 and 2010 was $562 thousand and $503 thousand, respectively. The following assumptions were used in applying the Black-Scholes option pricing model at the grant dates: risk-free interest rate of 2.5% to 3.1% and 2.6% to 3.1% for the nine months ended September 30, 2011 and 2010, respectively, dividend yield of 6.4% and 6.6% for the nine months ended September 30, 2011 and 2010, respectively, volatility factors in the expected market price of the Company’s common shares of 39.8% and 39.5% for the nine months ended September 30, 2011 and 2010, respectively, no expected forfeitures and an expected life of eight years. The Company uses historical data to estimate the expected life of the option and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Additionally, expected volatility is computed based on the average historical volatility of the Company’s publicly traded shares.

Nonvested Shares Issued to Employees

The Company grants nonvested shares to employees pursuant to both the Annual Incentive Program and the Long-Term Incentive Plan. The Company amortizes the expense related to the nonvested shares awarded to employees under the Long-Term Incentive Plan and the premium awarded under the nonvested share alternative of the Annual Incentive Program on a straight-line basis over the future vesting period (three to five years). Total expense recognized related to shares issued to employees was $3.2 million and $2.7 million for the nine months ended September 30, 2011 and 2010, respectively.

Restricted Share Units Issued to Non-Employee Trustees

The Company issues restricted share units to non-employee Trustees for payment of their annual retainers. The fair value of the share units granted was based on the share price at the date of grant. The share units vest upon the earlier of the day preceding the next annual meeting of shareholders or a change of control. The settlement date for the shares is selected by the non-employee Trustee, and ranges from one year from the grant date to upon termination of service. This expense was amortized by the Company on a straight-line basis over the year of service by the non-employee Trustees. Total expense recognized related to such shares issued to non-employee Trustees was $367 thousand and $327 thousand for the nine months ended September 30, 2011 and 2010, respectively.

Derivative Instruments

The Company has acquired certain derivative instruments to reduce exposure to fluctuations in foreign currency exchange rates and variable interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These derivatives consist of foreign currency forward contracts, cross currency swaps and interest rate swaps.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Reclassifications

Certain reclassifications have been made to the prior period amounts to conform to the current period presentation.

3. Rental Properties

The following table summarizes the carrying amounts of rental properties as of September 30, 2011 and December 31, 2010 (in thousands):


	September 30, 2011			December 31, 2010
Buildings and improvements	$	1,573,989		$	1,707,180
Furniture, fixtures & equipment		54,738			71,866
Land		492,956			537,929

		2,121,683			2,316,975
Accumulated depreciation		(322,736	)		(296,784	)

Total	$	1,798,947		$	2,020,191

Depreciation expense on rental properties was $33.6 million and $32.9 million for the nine months ended September 30, 2011 and 2010, respectively.

4. Impairment Charges

During the three months ended June 30, 2011, the Company entered into an agreement to sell one of its vineyard and winery properties. During the three months ended March 31, 2011, the Company recorded an impairment charge of $1.8 million, which is the amount that the carrying value of the assets exceeds the estimated fair market value. The sale of this property is expected to close within a year. This asset has been classified as held for sale in the accompanying consolidated balance sheet and the results of operations have been classified within discontinued operations. See Note 16 for further details.

During the three months ended June 30, 2011, the Company engaged outside brokers to list all of

its winery and vineyard properties for sale or lease with the primary focus on selling all of these assets within the next two years. Management estimated the fair values of these properties taking into account various factors, including the shortened holding period, current market conditions as well as independent appraisals prepared as of June 30, 2011 for most of the properties utilizing a leased fee or fee simple approach as applicable. It was determined that the carrying value of seven of the Company’s vineyard and winery properties exceeded the estimated fair values by $34.3 million, and an impairment charge was recorded in the second quarter for this amount. Subsequent to June 30, 2011, one of these properties was sold. Accordingly, the related results of operations including the impairment charge of $7.1 million for this property have been classified within discontinued operations. See Note 16 for further details.

5. Investments and Dispositions

On January 31, 2011, the Company funded $2.1 million in development costs for expansion of one of its existing public charter school properties. This amount is included in investment in direct financing lease, net in the accompanying consolidated balance sheet which is further discussed in Note 6.

On March 3, 2011, the Company acquired four theatre properties for a total investment of $36.8 million pursuant to a sale-leaseback transaction. The theatre properties are located in New Hampshire and Maine and contain an aggregate of 56 screens. The theatre properties are leased to Cinemagic pursuant to lease agreements that are structured as a triple net lease with the tenant responsible for all taxes, costs and expenses arising from the use or operation of the properties. As a part of this transaction, the Company assumed a mortgage note payable on one of the four theatres with an outstanding balance of $3.8 million and a fair value of $4.1 million at the acquisition date. See Note 9 for further discussion of this mortgage note payable.

On March 29, 2011 the Company sold its Toronto Dundas Square entertainment retail center and related signage business in downtown Toronto. The gross sale proceeds were approximately $226 million Canadian (CAD) and the net sales proceeds, after selling costs, were $222.7 million CAD. The acquirer did not purchase any of the pre-acquisition receivables, payables or accrued liabilities and the purchase and sale agreement called for the establishment of $15.3 million CAD of escrow accounts primarily for the payment of previously accrued property taxes. This amount has been netted against the net proceeds from sale of real estate from discontinued operations in the consolidated statement of cash flows for the nine months ended September 30, 2011. The net proceeds from this sale, after the aforementioned escrows, were converted to U.S. dollars primarily through a foreign currency forward contract that was entered into on February 3, 2011 and designated as a net investment hedge. This forward contract allowed the Company to sell $200 million CAD for $201.5 million U.S. The Company used the proceeds to pay down its revolving line of credit and recorded a net gain of $18.3 million U.S. on the sale of real estate, including the impact of foreign currency and the settlement of the forward contract. The results of operations of the project have been classified within discontinued operations retroactively through the first quarter of 2010 as the project was purchased on March 4, 2010 (see Note 16 for further details). During the third quarter of 2011, approximately $8.8 million CAD was paid from reserves leaving an outstanding balance of $6.5 million CAD at September 30, 2011. As of September 30, 2011, the Company’s consolidated balance sheet includes $7.1 million CAD of assets and $6.7 million CAD of liabilities related to Toronto Dundas Square; however, the Company has no significant continuing involvement with the ownership or operation of the project.

In conjunction with the sale by Ascentia Wine Estates (Ascentia) of the Gary Farrell brand and related inventory assets on April 28, 2011, the Company elected to sell its winery assets to the same buyer. As a result, the Company terminated its lease on these assets with Ascentia and was paid $2.0 million in outstanding receivables and a $1.0 million lease termination fee that is included in income from discontinued operations in the accompanying consolidated statements of income for the nine months ended September 30, 2011. In addition, the Company received $6.5 million from the buyer for its winery assets, which was equal to the net book value of such assets. This transaction was contemplated by the modification agreement between the Company and Ascentia dated January 13, 2011. The results of operations of this property have been classified within discontinued operations. See Note 16 for further details.

On July 29, 2011, the Company acquired the improvements and ground lease interest of the Pinstripes entertainment facility in Northbrook, Illinois for a purchase price of approximately $7.0 million. The 34,000 square foot facility, which has been operating for more than a year, features bowling, bocce, upscale food and beverage, and other entertainment offerings. The facility is leased to Pinstripes Northbrook under a 15-year triple-net lease, with additional options to renew, and is guaranteed by Pinstripes, Inc.

On August 2, 2011, the Company acquired development land in Colorado for a purchase price of $1.1 million. As a part of this transaction, the Company has agreed to finance an additional $7.0 million for construction of a public charter school that will be leased to HighMark Development (HighMark) under a long-term triple-net lease commencing upon completion of the development.

During the three months ended September 30, 2011, the Company completed development of three public charter school properties that are also leased to HighMark under long-term triple-net leases; one located in Arizona and two in Colorado. The total combined development cost for these three public charter schools was approximately $21.0 million, which is included in investment in direct financing lease, net, in the accompanying consolidated balance sheet. See Note 6 for further details.

During the three months ended September 30, 2011, the Company completed development of a public charter school property located in Louisiana that is leased under a long-term triple-net lease to Charter Schools Development Corporation. The total development cost (including land and building) was approximately $6.7 million.

During the three months ended September 30, 2011, the Company completed development of a public charter school property located in Arizona that is leased under a long-term triple-net lease to Phoenix Charter Properties, LLC. The total development cost (including land and building) was approximately $5.5 million.

During the three months ended September 30, 2011, the Company completed development of a public charter school property located in Arizona that is leased under a long-term triple-net lease to American Leadership Academy. The total development cost (including land and building) was approximately $9.3 million.

During the nine months ended September 30, 2011, the Company advanced $9.4 million under its secured mortgage loan agreements with SVV I, LLC and an affiliate of SVV I, LLC (together SVVI) to provide for additional improvements made to the Kansas City, Kansas and Texas water-parks. The carrying value of this mortgage note receivable at September 30, 2011 was $178.8 million.

On August 16, 2011, the Company completed the sale of the tasting room portion of its Buena Vista winery facility in Sonoma California for $1.7 million and no gain or loss on sale was recognized.

On September 20, 2011, the Company completed the sale of a 60 acre vineyard and winery facility in Paso Robles, California, for $13.3 million and a gain on sale of $16 thousand was recognized during the three months ended September 30, 2011. As further detailed in Note 16, the results of operations of the property have been classified within discontinued operations.

6. Investments in Direct Financing Leases

Investments in direct financing leases relate to the Company’s master lease with Imagine Schools, Inc. related to 27 public charter school properties and the Company’s lease agreements with HighMark related to three public charter school properties. Investments in direct financing leases, net, represents estimated unguaranteed residual values of leased assets and net unpaid rentals, less related deferred income. The following table summarizes the carrying amounts of investments in direct financing leases, net, as of September 30, 2011 and December 31, 2010 (in thousands):


	September 30, 2011			December 31, 2010
Total minimum lease payments receivable	$	757,053		$	699,069
Estimated unguaranteed residual value of leased assets		236,879			213,885
Less deferred income (1)		(740,588	)		(686,521	)

Investments in direct financing leases, net	$	253,344		$	226,433

(1)	Deferred income is net of $1.9 million and $1.8 million of initial direct costs at September 30, 2011 and December 31, 2010, respectively.

Additionally, the Company determined that no allowance for losses related to the direct financing leases was necessary at September 30, 2011 or December 31, 2010.

The Company’s direct financing leases have expiration dates ranging from approximately 21 to 25 years. Future minimum rentals receivable on direct financing leases at September 30, 2011 are as follows (in thousands):


	Amount
Year:
2011	$	6,207
2012		25,307
2013		26,007
2014		26,745
2015		27,547
Thereafter		645,240

Total	$	757,053

7. Accounts Receivable, Net

The following table summarizes the carrying amounts of accounts receivable, net, as of September 30, 2011 and December 31, 2010 (in thousands):


	September 30, 2011			December 31, 2010
Receivable from tenants	$	9,115		$	11,634
Receivable from non-tenants		410			155
Receivable from Canada Revenue Agency		829			3,293
Straight-line rent receivable		25,935			27,003
Deferred rent receivable (1)		4,420			4,420
Allowance for doubtful accounts		(6,320	)		(6,691	)

Total	$	34,389		$	39,814

(1)

Rent deferral payments of $3.4 million are guaranteed by a private equity firm. During the year ended December 31, 2010, the Company also granted an additional rent deferral of $1.0 million that is not guaranteed by the private equity firm. This amount has been fully reserved at September 30, 2011. Rent deferral payments are due on or before June 9, 2012 and bear interest at 8.7%.

8. Unconsolidated Real Estate Joint Ventures

At September 30, 2011, the Company had a 36.0% and 25.7% investment interest in two unconsolidated real estate joint ventures, Atlantic-EPR I and Atlantic-EPR II, respectively. The Company accounts for its investment in these joint ventures under the equity method of accounting.

On May 1, 2010, the Company contributed an additional $14.9 million in equity to Atlantic-EPR I to pay off the Partnership’s long-term debt at its maturity. Pursuant to the partnership agreement, the Company is entitled to earn a priority return of 15% on its additional contribution. Accordingly, the Company recognized income of $1.9 million and $1.3 million from its investment in the Atlantic-EPR I joint venture during the first nine months of 2011 and 2010, respectively. The Company also received distributions from Atlantic-EPR I of $1.9 million and $1.3 million during the first nine months of 2011 and 2010, respectively. Unaudited condensed financial information for Atlantic-EPR I is as follows as of and for the nine months ended September 30, 2011 and 2010 (in thousands):


	2011		2010
Rental properties, net	$	26,185	$	26,829
Cash		677		1
Partners’ equity		26,943		26,980
Rental revenue		2,958		3,368
Net income		738		1,483

The Company recognized income of $279 and $261 (in thousands) from its investment in the Atlantic-EPR II joint venture during the first nine months of 2011 and 2010, respectively. The Company also received distributions from Atlantic-EPR II of $310 and $290 (in thousands) during the first nine months of 2011 and 2010, respectively. Unaudited condensed financial information for Atlantic-EPR II is as follows as of and for the nine months ended September 30, 2011 and 2010 (in thousands):


	2011		2010
Rental properties, net	$	20,691	$	21,152
Cash		159		131
Long-term debt (due September 2013)		12,320		12,689
Note payable to Entertainment Properties Trust		117		117
Partners’ equity		8,116		8,230
Rental revenue		2,167		2,167
Net income		1,040		1,023

The joint venture agreements for Atlantic-EPR I and Atlantic-EPR II allow the Company’s partner, Atlantic of Hamburg, Germany (“Atlantic”), to exchange up to a maximum of 10% of its ownership interest per year in each of the joint ventures for common shares of the Company or, at the Company’s discretion, the cash value of those shares as defined in each of the joint venture agreements. During 2010, the Company paid Atlantic cash of $679 and $186 (in thousands) in exchange for additional ownership of 3.1% and 1.6% for Atlantic-EPR I and Atlantic-EPR II, respectively. During the nine months ended September 30, 2011, the Company has paid Atlantic cash of $1.8 million and $0.3 million in exchange for additional ownership of 8.0% and 2.0% for Atlantic-EPR I and Atlantic-EPR II, respectively. These exchanges did not impact total partners’ equity in either Atlantic-EPR I or Atlantic-EPR II.

In addition, as of September 30, 2011 and December 31, 2010, the Company had invested $4.2 million and $2.9 million, respectively, in unconsolidated joint ventures for three theatre projects located in China. The Company recognized income of $54 and a loss of $180 (in thousands) from its investment in these joint ventures for the nine months ended September 30, 2011 and 2010, respectively.

9. Long-Term Debt

On February 7, 2011, the Company paid in full the eight term loans outstanding under its vineyard and winery facility totaling $86.2 million. In connection with the payment in full of the term loans, the related interest rate swaps were terminated at a cost of $4.6 million. Additionally, deferred financing costs, net of accumulated amortization, of $1.8 million were written off as part of this loan prepayment.

On March 3, 2011, the Company assumed a mortgage note payable of $3.8 million in conjunction

with the acquisition of a theatre property. The note matures on July 1, 2017 and requires monthly principal and interest payments of approximately $28 thousand with a final principal payment at maturity of approximately $3.2 million. The note was recorded at fair value upon acquisition which was estimated to be $4.1 million. The fair value of the note was determined by discounting the future cash flows of the note using an estimated current market rate of 5.29%. Based on this input, the Company determined that its valuation of this note was classified within Level 2 of the fair value hierarchy.

During March 2011, the Company exercised a portion of the accordion feature on its unsecured revolving credit facility. As a result of this exercise, the Company’s unsecured revolving credit facility capacity was expanded from $320.0 million to $382.5 million. As further discussed in Note 19, as of October 13, 2011, the Company refinanced its unsecured revolving credit facility.

On June 22, 2011, the Company completed its offer to exchange its $250 million aggregate principal amount of 7.750% senior notes due 2020, which were issued in a private placement (the original notes), for an equal principal amount of its 7.750% senior notes due 2020, which have been registered under the Securities Act of 1933, as amended. Pursuant to the exchange offer, $250 million aggregate principal amount, or 100%, of the original notes were validly tendered and accepted for exchange. The exchange offer was made to satisfy the Company’s obligations under a registration rights agreement entered into on June 30, 2010 in connection with the issuance of the original notes, and does not represent a new financing transaction.

10. Variable Interest Entities

The Company’s variable interest in VIEs currently are in the form of equity ownership and loans provided by the Company to a VIE or other partner. The Company examines specific criteria and uses its judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, and level of economic disproportionality between the Company and the other partner(s).

Consolidated VIEs

As of September 30, 2011, the carrying amounts of the VIEs’ assets that were consolidated totaled $22.6 million. Those assets are owned by the VIEs, not the Company. A VIE’s assets can only be used to settle obligations of a VIE. The VIEs are not guarantors of the Company’s debts. In addition, the assets held by a VIE usually are collateral for that VIE’s debt, if any.

The Company’s consolidated VIEs consist of a 50% interest in Suffolk Retail LLC, which owns an entertainment retail center in Suffolk, Virginia as well as two other 50% joint ventures to explore certain investment opportunities.

Unaudited financial information including the carrying amounts and classification of these VIEs’ significant assets and liabilities are as follows as of and for the nine months ended September 30, 2011(in thousands):


Rental properties, net	$	18,731
Property under development		3,036
Other assets		751
Total assets		22,561
Total liabilities		124
Noncontrolling interests		4
Total revenue		1,042
Net income		158

Unconsolidated VIE

At September 30, 2011, the Company’s recorded investment in SVVI, a VIE that is unconsolidated, was $178.8 million. This amount represents the Company’s maximum exposure to loss as it is the amount committed by the Company per the mortgage note agreements plus related accrued interest receivable of $409 thousand at September 30, 2011.

While this entity is a VIE, the Company has determined that the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance is not held by the Company. The Company does not have the power to direct these activities. Additionally, the Company does not have the right to receive benefits (beyond its interest payments per the note agreement) and does not have the obligation to absorb losses of SVVI, as its equity at risk is limited to the amount invested in the note.

11. Derivative Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to the effect of changes in foreign currency exchange rates and interest rates on its LIBOR based borrowings. The Company limits this risk by following established risk management policies and procedures including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings and to manage its exposure to foreign exchange and interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps, cross currency swaps and foreign currency forwards.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its LIBOR based borrowings. To accomplish this objective, the Company has used interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During the year ended December 31, 2010, the Company terminated three of its interest rate swap agreements in connection with the payoff of the related debt. These interest rate swaps had a combined outstanding notional amount of $118.6 million at termination and $8.7 million was reclassified into earnings as an expense during the year ended December 31, 2010, as the forecasted future transactions were no longer probable. On February 7, 2011, the remaining interest rate swap agreements were terminated as the related loan agreements were paid in full. These interest rate swaps had a combined notional amount of $87.7 million at termination and $4.6 million was reclassified into earnings as an expense during the nine months ended September 30, 2011, as the forecasted future transactions were no longer probable.

Cash Flow Hedges of Foreign Exchange Risk

The Company is exposed to foreign currency exchange risk against its functional currency, the U.S. dollar, on its four Canadian properties. The Company uses cross currency swaps and foreign currency forwards to mitigate its exposure to fluctuations in the CAD to U.S. dollar exchange rate on its Canadian properties. These foreign currency derivatives should hedge a significant portion of the Company’s expected CAD denominated cash flow of the Canadian properties through February 2014 as their impact on the Company’s cash flow when settled should move in the opposite direction of the exchange rates utilized to translate revenues and expenses of these properties.

At September 30, 2011, the Company’s cross-currency swaps had a fixed notional value of $76.0 million CAD and $71.5 million U.S. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per U.S. dollar on approximately $13 million of annual CAD denominated cash flows on the properties through February 2014.

Additionally, the Company has entered into foreign currency forward agreements to hedge the currency fluctuations related to the cash flows of these properties. These foreign currency forwards settled or settle at the end of each month from April to December 2011 and lock in an exchange rate of $0.99 CAD per U.S. dollar on approximately $500 thousand of monthly CAD denominated cash flows.

The effective portion of changes in the fair value of foreign currency derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in accumulated other comprehensive income (AOCI) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, as well as amounts excluded from the assessment of hedge effectiveness, is recognized directly in earnings. No hedge ineffectiveness on foreign currency derivatives has been recognized for the nine months ended September 30, 2011.

Net Investment Hedges

As discussed above, the Company is exposed to fluctuations in foreign exchange rates on its four Canadian properties. As such, the Company uses currency forward agreements to hedge its exposure to changes in foreign exchange rates. Currency forward agreements involve fixing the CAD to U.S. dollar exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in US dollars for their fair value at or close to their settlement date. In order to hedge the net investment in four of the Canadian properties, the Company entered into a forward contract with a fixed notional value of $100 million CAD and $96.1 million U.S. with a February 2014 settlement which coincides with the maturity of the Company’s underlying mortgage on these properties. The exchange rate of this forward contract is approximately $1.04 CAD per U.S. dollar. This forward contract should hedge a significant portion of the Company’s CAD denominated net investment in these four centers through February 2014 as the impact on AOCI from marking the derivative to market should move in the opposite direction of the translation adjustment on the net assets of these four Canadian properties.

In addition, on February 3, 2011, in order to hedge the foreign currency exposure related to the proceeds from the March 29, 2011 sale of a Canadian property, the Company entered into a forward contract to sell $200 million CAD for $201.5 million U.S. dollars. The contract settled in conjunction with the sale of the property on March 29, 2011 and the $4.3 million loss related to the settlement was recognized with the gain on sale of the property.

For foreign currency derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in AOCI as part of the cumulative translation adjustment. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness on net investment hedges has been recognized for the nine months ended September 30, 2011. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated.

See Note 12 for disclosure relating to the fair value of the Company’s derivative instruments. Below is a summary of the effect of derivative instruments on the consolidated statements of changes in equity and income for the three and nine months ended September 30, 2011 and 2010:

Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and

Income for the Three and Nine Months Ended September 30, 2011 and 2010

(Unaudited, dollars in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
Description	2011			2010			2011			2010
Interest Rate Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		—			(1,809	)		(4,125	)		(17,831	)
Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion) (1)		—			(665	)		(4,722	)		(12,896	)
Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion)		—			—			—			—

Cross Currency Swaps
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		2,373			(1,357	)		894			(354	)
Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion) (2)		(172	)		(20	)		(671	)		(49	)
Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion)		—			—			—			—

Currency Forward Agreements
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		6,483			(2,648	)		(1,294	)		512
Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion) (3)		(4	)		10			(4,318	)		10
Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion)		—			—			—			—

Total
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		8,856			(5,814	)		(4,525	)		(17,673	)
Amount of Income (Expense) Reclassified from AOCI into Earnings (Effective Portion)		(176	)		(675	)		(9,711	)		(12,935	)
Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion)		—			—			—			—

(1)

$4.6 million included in Costs associated with loan refinancing and $137 thousand included in Interest expense in the accompanying consolidated statements of income for the nine months ended September 30, 2011. $8.7 million included in Costs associated with loan refinancing in the accompanying consolidated statements of income for the nine months ended September 30, 2010. $0.7 million and $4.2 million included in Interest expense in the accompanying consolidated statements of income for the three and nine months ended September 30, 2010, respectively.

(2)	Included in Other expense in the accompanying consolidated statements of income.

(3)

$4.3 million included in Gain on sale of real estate in the accompanying consolidated statements of income for the nine months ended September 30, 2011. $4 thousand and $56 thousand included in Other expense in the accompanying consolidated statements of income for the three and nine months ended September 30, 2011, respectively.

Credit-Risk-Related Contingent Features

As of September 30, 2011, the Company had no derivatives in a liability position related to these agreements.

12. Fair Value Disclosures

The Company has certain financial instruments that are required to be measured under the FASB’s Fair Value Measurements and Disclosures guidance. The Company currently does not have any non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from

sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative Financial Instruments

The Company uses interest rate swaps, foreign currency forwards and cross currency swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives also utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of September 30, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, has classified its derivatives as Level 2 within the fair value reporting hierarchy.

The table below presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2011, aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

Assets Measured at Fair Value on a Recurring Basis at September 30, 2011

(Unaudited, dollars in thousands)


Description	Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2011
Cross Currency
Swaps*	$	—	$	152	$	—	$	152

Currency Forward
Agreements*	$	—	$	1,377	$	—	$	1,377

*	Included in “Other assets” in the accompanying consolidated balance sheet.

Non-Recurring Fair Value Measurements

The table below presents the Company’s assets and liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis During the

Nine Months Ended September 30, 2011

(Unaudited, dollars in thousands)


Description	Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Rental properties, net	$	—	$	—	$	134,186	$	134,186

Long-term debt	$	—	$	4,109	$	—	$	4,109

As further discussed in Note 4, during the nine months ended September 30, 2011, the Company recorded impairment charges of $36.1 million relating to adjustments to the carrying value of several of the Company’s winery and vineyard properties. The adjustment is the amount that the carrying value of the assets exceeds the estimated fair market value. Management estimated the fair values of these properties taking into account various factors, including the shortened holding period, current market conditions as well as independent appraisals prepared as of June 30, 2011 for most of the properties utilizing a leased fee or fee simple approach as applicable. Based on this input, the Company determined that its valuation of this investment was classified within Level 3 of the fair value hierarchy.

On March 3, 2011, the Company assumed a mortgage note payable of $3.8 million in conjunction with the acquisition of a theatre property. The note was recorded at fair value upon acquisition which was estimated to be $4.1 million. The fair value of the note was determined by discounting the future cash flows of the note using an estimated current market rate of 5.29%. Based on this input, the Company determined that its valuation of this note was classified within Level 2 of the fair value hierarchy.

Fair Value of Financial Instruments

Management compares the carrying value and the estimated fair value of the Company’s financial instruments. The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instruments at September 30, 2011:

Mortgage notes receivable and related accrued interest receivable:

The fair value of the Company’s mortgage notes and related accrued interest receivable is estimated by discounting the future cash flows of each instrument using current market rates. At September 30, 2011, the Company had a carrying value of $315.2 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 8.44%. The fixed rate mortgage notes bear interest at rates of 7.00% to 10.46%. Discounting the future cash flows for fixed rate mortgage notes receivable using an estimated weighted average market rate of 10.04%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $288.4 million at September 30, 2011.

Investment in a direct financing lease, net:

The fair value of the Company’s investment in a direct financing lease as of September 30, 2011 is estimated by discounting the future cash flows of the instrument using current market rates. At September 30, 2011, the Company had an investment in a direct financing lease with a carrying value of $253.3 million and a weighted average effective interest rate of 11.93%. The investment in direct financing lease bears interest at effective interest rates of 10.85% to 12.38%. The carrying value of the investment in a direct financing lease approximates the fair market value at September 30, 2011.

Cash and cash equivalents, restricted cash:

Due to the highly liquid nature of our short term investments, the carrying values of our cash and cash equivalents and restricted cash approximate the fair market values.

Accounts receivable, net:

The carrying values of accounts receivable approximate the fair market value at September 30, 2011.

Notes and related accrued interest receivable, net:

The fair value of the Company’s notes and related accrued interest receivable as of September 30, 2011 is estimated by discounting the future cash flows of each instrument using current market rates. At September 30, 2011, the Company had a carrying value of $5.1 million in fixed rate notes receivable outstanding, including related accrued interest and net of loan loss reserve, with a weighted average interest rate of approximately 8.41%. The fixed rate notes bear interest at rates of 6.00% to 15.00%. Discounting the future cash flows for fixed rate notes receivable using an estimated market rate of 9.41%, management estimates the fair value of the fixed rate notes receivable to be approximately $4.9 million at September 30, 2011.

Derivative instruments:

Derivative instruments are carried at their fair market value.

Debt instruments:

The fair value of the Company’s debt as of September 30, 2011 is estimated by discounting the future cash flows of each instrument using current market rates. At September 30, 2011, the Company had a carrying value of $205.6 million in variable rate debt outstanding with an average weighted interest rate of approximately 3.07%. Discounting the future cash flows for variable rate debt using an estimated market rate of 2.08%, management estimates the fair value of the variable rate debt to be approximately $215.3 million at September 30, 2011.

At September 30, 2011, the Company had a carrying value of $924.0 million in fixed rate long-term debt outstanding with an average weighted interest rate of approximately 6.54%. Discounting the future cash flows for fixed rate debt using an estimated market rate of 6.24%, management estimates the fair value of the fixed rate debt to be approximately $935.8 million at September 30, 2011.

At September 30, 2011, the Company had a capital lease obligation with a carrying value of $9.2 million. The carrying value of the capital lease obligation approximates the fair market value at September 30, 2011.

Accounts payable and accrued liabilities:

The carrying value of accounts payable and accrued liabilities approximates fair value due to the short term maturities of these amounts.

Common and preferred dividends payable:

The carrying values of common and preferred dividends payable approximate fair value due to the short term maturities of these amounts.

13. Redemption of Series B Preferred Shares

On August 31, 2011, the Company completed the redemption of all 3.2 million outstanding shares of its 7.75% Series B preferred shares. The shares were redeemed at a redemption price of $25.32 per share. This price is the sum of the $25.00 per share liquidation preference and a quarterly dividend per share of $0.484375 prorated through the redemption date. In conjunction with the redemption, the Company recognized a charge representing the original issuance costs that were paid in 2005 and other redemption related expenses. The Series B preferred share redemption costs, which reduced net income available to common shareholders for the three and nine months ended September 30, 2011, were $2.8 million.

14. Earnings Per Share

The following table summarizes the Company’s computation of basic and diluted earnings per share (EPS) for the three and nine months ended September 30, 2011 and 2010 (unaudited, amounts in thousands except per share information):


	Three Months Ended September 30, 2011							Nine Months Ended September 30, 2011
	Income (numerator)			Shares (denominator)		Per Share Amount		Income (numerator)			Shares (denominator)		Per Share Amount
Basic EPS:
Income from continuing operations	$	35,432						$	65,941
Less: preferred dividend requirements and redemption costs		(9,803	)						(24,907	)
Noncontrolling interest adjustments		(11	)						(13	)

Income from continuing operations available to common shareholders	$	25,618			46,680	$	0.55	$	41,021			46,611	$	0.88

Income from discontinued operations available to common shareholders	$	131						$	11,358
Noncontrolling interest adjustments		—							—

Income from discontinued operations	$	131			46,680		—	$	11,358			46,611		0.24

Net income available to common shareholders	$	25,749			46,680	$	0.55	$	52,379			46,611	$	1.12

Diluted EPS:
Income from continuing operations available to common shareholders	$	25,618			46,680			$	41,021			46,611
Effect of dilutive securities:
Share options		—			238				—			263

Income from continuing operations available to common shareholders	$	25,618			46,918	$	0.55	$	41,021			46,874	$	0.88

Income from discontinued operations available to common shareholders	$	131			46,918		—	$	11,358			46,874		0.24

Net income available to common shareholders	$	25,749			46,918	$	0.55	$	52,379			46,874	$	1.12


	Three Months Ended September 30, 2010							Nine Months Ended September 30, 2010
	Income (numerator)			Shares (denominator)		Per Share Amount		Income (numerator)			Shares (denominator)		Per Share Amount
Basic EPS:
Income from continuing operations	$	33,273						$	85,059
Less: preferred dividend requirements		(7,552	)						(22,655	)
Noncontrolling interest adjustments		(34	)						(114	)

Income from continuing operations available to common shareholders	$	25,687			46,511	$	0.55	$	62,290			44,757	$	1.39

Loss from discontinued operations available to common shareholders	$	1,770						$	(6,178	)
Noncontrolling interest adjustments		—							1,905

Loss from discontinued operations	$	1,770			46,511		0.04	$	(4,273	)		44,757		(0.09	)

Net income available to common shareholders	$	27,457			46,511	$	0.59	$	58,017			44,757	$	1.30

Diluted EPS:
Income from continuing operations available to common shareholders	$	25,687			46,511			$	62,290			44,757
Effect of dilutive securities:
Share options		—			298				—			280

Income from continuing operations available to common shareholders	$	25,687			46,809	$	0.55	$	62,290			45,037	$	1.38

Loss from discontinued operations available to common shareholders	$	1,770			46,809	$	0.03	$	(4,273	)		45,037	$	(0.09	)

Net income available to common shareholders	$	27,457			46,809	$	0.58	$	58,017			45,037	$	1.29

The additional 1.9 million common shares that would result from the conversion of the Company’s 5.75% Series C cumulative convertible preferred shares and the additional 1.6 million common shares that would result from the conversion of the Company’s 9.0% Series E cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share for the three and nine months ended September 30, 2011 and 2010 because the effect is anti-dilutive.

15. Equity Incentive Plans

All grants of common shares and options to purchase common shares were issued under the 1997 Share Incentive Plan prior to May 9, 2007, and under the 2007 Equity Incentive Plan on and after May 9, 2007. Under the 2007 Equity Incentive Plan, an aggregate of 1,950,000 common shares, options to purchase common shares and restricted share units, subject to adjustment in the event of certain capital events, may be granted. At September 30, 2011, there were 675,941 shares available for grant under the 2007 Equity Incentive Plan.

Share Options

Share options granted under both the 1997 Share Incentive Plan and the 2007 Equity Incentive Plan have exercise prices equal to the fair market value of a common share at the date of grant. The options may be granted for any reasonable term, not to exceed 10 years, and for employees

typically become exercisable at a rate of 25% per year over a four-year period. For non-employee Trustees, share options are vested upon issuance, however, the share options may not be exercised for a one-year period subsequent to the grant date. The Company generally issues new common shares upon option exercise. A summary of the Company’s share option activity and related information is as follows:


	Number of Shares			Option Price Per Share		Weighted Average Exercise Price
Outstanding at
December 31, 2010		1,071,096			$16.05 – $65.50	$	32.00
Exercised		(135,196	)		18.18 – 42.46		21.96
Granted		70,266			45.73 – 47.77		46.19
Forfeited		(3,333	)		16.05 – 16.05		16.05

Outstanding at
September 30, 2011		1,002,833			18.18 – 65.50		34.41

The weighted average fair value of options granted was $9.29 and $7.27 during the nine months ended September 30, 2011 and 2010, respectively. The intrinsic value of stock options exercised was $2.9 million and $3.4 million during the nine months ended September 30, 2011 and 2010, respectively. Additionally, the Company repurchased 43,039 shares into treasury shares in conjunction with the stock options exercised during the nine months ended September 30, 2011 with a total value of $2.0 million. At September 30, 2011, stock-option expense to be recognized in future periods was $1.1 million.

The following table summarizes outstanding options at September 30, 2011:


Exercise price range	Options outstanding		Weighted avg. life remaining		Weighted avg. exercise price		Aggregate intrinsic value (in thousands)
$ 18.18 – 19.99		310,807		7.3
20.00 – 29.99		172,304		1.4
30.00 – 39.99		96,303		4.4
40.00 – 49.99		310,066		5.9
50.00 – 59.99		10,000		6.6
60.00 – 65.50		103,353		5.3

		1,002,833		5.4	$	34.41	$	9,030

The following table summarizes exercisable options at September 30, 2011:


Exercise price range	Options outstanding		Weighted avg. life remaining		Weighted avg. exercise price		Aggregate intrinsic value (in thousands)
$ 18.18 – 19.99		110,679		7.4
20.00 – 29.99		172,304		1.4
30.00 – 39.99		72,189		3.1
40.00 – 49.99		209,978		4.8
50.00 – 59.99		10,000		6.6
60.00 – 65.50		84,686		5.3

		659,836		4.3	$	36.51	$	4,845

Nonvested Shares

A summary of the Company’s nonvested share activity and related information is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Life Remaining
Outstanding at
December 31, 2010		372,308		$	33.89
Granted		137,020			45.85
Vested		(158,465	)		34.90

Outstanding at
September 30, 2011		350,863			38.11		1.03

The holders of nonvested shares have voting rights and receive dividends from the date of grant. These shares vest ratably over a period of three to five years. The fair value of the nonvested shares that vested during the nine months ended September 30, 2011 and 2010 was $7.3 million and $5.0 million, respectively. At September 30, 2011, unamortized share-based compensation expense related to nonvested shares was $6.6 million.

Restricted Share Units

A summary of the Company’s restricted share unit activity and related information is as follows:


	Number of Shares			Weighted Average Grant Date Fair Value		Weighted Average Life Remaining
Outstanding at
December 31, 2010		10,506		$	44.98
Granted		10,519			47.77
Vested		(10,506	)		44.98

Outstanding at
September 30, 2011		10,519			47.77		0.61

The holders of restricted share units have voting rights and receive dividends from the date of grant. The share units vest upon the earlier of the day preceding the next annual meeting of shareholders or a change of control. The settlement date for the shares is selected by the non-employee Trustee, and ranges from one year from the grant date to upon termination of service. At September 30, 2011, unamortized share-based compensation expense related to restricted share units was $293 thousand.

16. Discontinued Operations

Included in discontinued operations for the nine months ended September 30, 2011 and 2010 is the operations of Toronto Dundas Square which was purchased out of receivership on March 4, 2010 and subsequently sold on March 29, 2011, as well as the operations of the Gary Farrell winery sold on April 28, 2011, the Pope Valley winery which was held for sale as of September 30, 2011 and the EOS Winery which was sold on September 20, 2011. In addition, included in

discontinued operations for the three and nine months ended September 30, 2010 are the operations of a ten acre vineyard and winery facility sold on June 15, 2010, a parcel of land including one building sold on July 14, 2010 and the operations of the City Center entertainment retail center in White Plains, New York (City Center). As a result of the settlement with Mr. Cappelli and his affiliates on June 18, 2010, the Company no longer holds an interest in the previously consolidated joint ventures that owned City Center.

The operating results relating to assets disposed of are as follows (unaudited, in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011			2010
Rental revenue	$	167	$	4,165	$	5,219		$	14,351
Tenant reimbursements		—		2,336		2,409			6,739
Other income		—		—		—			31
Mortgage and other financing income		—		5		4			5

Total revenue		167		6,506		7,632			21,126
Property operating expense		23		2,960		3,112			11,592
Other expense		29		44		125			265
General and administrative expense		—		—		—			2
Costs associated with loan refinancing		—		—		225			4,236
Interest expense, net		—		47		21			5,635
Transaction costs		—		—		—			7,270
Impairment charges		—		—		8,941			—
Depreciation and amortization		—		1,883		2,159			6,036

Income (loss) before gain on acquisition and gain on sale of real estate		115		1,572		(6,951	)		(13,910	)
Gain on acquisition		—				—			8,468
Gain (loss) on sale of real estate		16		198		18,309			(736	)

Net income (loss)	$	131	$	1,770	$	11,358		$	(6,178	)

17. Other Commitments and Contingencies

As of September 30, 2011, the Company had two theatre development projects and one retail development project under construction for which it has agreed to finance the development costs. At September 30, 2011, the Company has commitments to fund approximately $14.9 million of additional improvements which are expected to be funded in 2011 and early 2012. Development costs are advanced by the Company in periodic draws. If the Company determines that construction is not being completed in accordance with the terms of the development agreements, it can discontinue funding construction draws. The Company has agreed to lease the properties to the operators at pre-determined rates upon completion of construction.

As further discussed in Note 5, the Company has acquired one public charter school property and has agreed to finance the development costs. At September 30, 2011, the Company has commitments to fund approximately $6.4 million of additional improvements for this property which is expected to be funded in 2011 and early 2012. Development costs are advanced by the Company in periodic draws. If the Company determines that construction is not being completed in accordance with the terms of the development agreement, it can discontinue funding construction draws. The Company has agreed to lease the property to the operator at a pre-determined rate upon completion of construction.

The Company has provided a guarantee of the payment of certain economic development revenue bonds related to four theatres in Louisiana for which the Company earns a fee at an annual rate of 1.75% over the 30 year term of the bond. The Company has recorded $3.2 million as a deferred asset included in other assets and $3.2 million included in other liabilities in the accompanying consolidated balance sheet as of September 30, 2011 related to this guarantee. No amounts have been accrued as a loss contingency related to this guarantee because payment by the Company is not probable.

The Company has certain commitments related to its mortgage note investments that it may be required to fund in the future. The Company is generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of its direct control. As of September 30, 2011, the Company had mortgage notes receivable with commitments totaling approximately $28.5 million. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

18. Condensed Consolidating Financial Statements

A portion of our subsidiaries have guaranteed the Company’s indebtedness under the unsecured senior notes and the unsecured revolving credit facility. The guarantees are joint and several, full and unconditional. The following summarizes the Company’s condensed consolidating information as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 (unaudited, in thousands):

Condensed Consolidating Balance Sheet

As of September 30, 2011


	Entertainment Properties Trust (Issuer)		Wholly-Owned Subsidiary Guarantors		Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Rental properties, net	$	—	$	653,469	$	1,145,478	$	—		$	1,798,947
Rental properties held for sale, net		—		—		4,696		—			4,696
Land held for development		—		—		184,457		—			184,457
Property under development		—		2,209		12,866		—			15,075
Mortgage notes and related accrued interest receivable, net		—		315,204		—		—			315,204
Investments in direct financing leases, net		—		253,344		—		—			253,344
Investment in joint ventures		20,422		—		4,245		—			24,667
Cash and cash equivalents		1,733		309		12,260		—			14,302
Restricted cash		—		20,786		7,528		—			28,314
Intangible assets, net		—		—		4,670		—			4,670
Deferred financing costs, net		9,523		4,219		3,026		—			16,768
Accounts receivable, net		189		5,721		28,479		—			34,389
Intercompany notes receivable		98,484		—		31,394		(129,878	)		—
Notes receivable and related accrued interest receivable, net		173		—		4,882		—			5,055
Investments in subsidiaries		1,623,246		—		—		(1,623,246	)		—
Other assets		14,729		2,842		8,438		—			26,009

Total assets	$	1,768,499	$	1,258,103	$	1,452,419	$	(1,753,124	)	$	2,725,897

Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	11,101	$	17,417	$	9,511	$	—		$	38,029
Dividends payable		38,709		—		—		—			38,709
Unearned rents and interest		—		12,121		1,478		—			13,599
Intercompany notes payable		—		—		129,878		(129,878	)		—
Long-term debt		250,000		195,000		693,839		—			1,138,839

Total liabilities		299,810		224,538		834,706		(129,878	)		1,229,176

Entertainment Properties Trust shareholders’ equity		1,468,689		1,033,565		589,681		(1,623,246	)		1,468,689
Noncontrolling interests		—		—		28,032		—			28,032

Total equity		1,468,689		1,033,565		617,713		(1,623,246	)		1,496,721

Total liabilities and equity	$	1,768,499	$	1,258,103	$	1,452,419	$	(1,753,124	)	$	2,725,897

Condensed Consolidating Balance Sheet

As of December 31, 2010


	Entertainment Properties Trust (Issuer)		Wholly-Owned Subsidiary Guarantors		Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Assets
Rental properties, net	$	—	$	807,891	$	1,212,300	$	—		$	2,020,191
Rental properties held for sale, net		—		—		6,432		—			6,432
Land held for development		—		—		184,457		—			184,457
Property under development		—		—		5,967		—			5,967
Mortgage notes and related accrued interest receivable, net		—		305,404		—		—			305,404
Investment in a direct financing lease, net		—		226,433		—		—			226,433
Investment in joint ventures		19,159		—		2,851		—			22,010
Cash and cash equivalents		3,356		1,116		7,304		—			11,776
Restricted cash		25		7,287		8,967		—			16,279
Intangible assets, net		—		29,829		5,815		—			35,644
Deferred financing costs, net		9,576		5,011		5,784		—			20,371
Accounts receivable, net		110		9,067		30,637		—			39,814
Intercompany notes receivable		227,141		—		28,649		(255,790	)		—
Notes receivable and related accrued interest receivable, net		168		—		4,959		—			5,127
Investments in subsidiaries		1,634,257		—		—		(1,634,257	)		—
Other assets		15,887		3,625		4,003		—			23,515

Total assets	$	1,909,679	$	1,395,663	$	1,508,125	$	(1,890,047	)	$	2,923,420

Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	18,636	$	26,251	$	11,601	$	—		$	56,488
Dividends payable		37,804		—		—		—			37,804
Unearned rents and interest		—		5,079		1,612		—			6,691
Intercompany notes payable		—		132,067		123,723		(255,790	)		—
Long-term debt		250,000		142,000		799,179		—			1,191,179

Total liabilities		306,440		305,397		936,115		(255,790	)		1,292,162

Entertainment Properties Trust shareholders’ equity		1,603,239		1,090,266		543,991		(1,634,257	)		1,603,239
Noncontrolling interests		—		—		28,019		—			28,019

Total equity		1,603,239		1,090,266		572,010		(1,634,257	)		1,631,258

Total liabilities and equity	$	1,909,679	$	1,395,663	$	1,508,125	$	(1,890,047	)	$	2,923,420

Condensed Consolidating Statement of Income

For the Three Months Ended September 30, 2011


	Entertainment Properties Trust (Issuer)			Wholly-Owned Subsidiary Guarantors		Non- Guarantor Subsidiaries			Consolidated Elimination			Consolidated
Rental revenue	$	—		$	20,380	$	36,469		$	—		$	56,849
Tenant reimbursements		—			462		3,957			—			4,419
Other income		23			—		142			—			165
Mortgage and other financing income		106			14,275		181			—			14,562
Intercompany fee income		677			—		—			(677	)		—
Interest income on intercompany notes receivable		4,164			—		608			(4,772	)		—

Total revenue		4,970			35,117		41,357			(5,449	)		75,995
Equity in subsidiaries’ earnings		35,438			—		—			(35,438	)		—

Property operating expense		—			1,086		4,874			—			5,960
Intercompany fee expense		—			—		677			(677	)		—
Other expense		—			—		629			—			629
General and administrative expense		—			2,139		2,416			—			4,555
Interest expense, net		5,077			2,052		10,782			—			17,911
Interest expense on intercompany notes payable		—			—		4,772			(4,772	)		—
Transaction costs		145			—		3			—			148
Depreciation and amortization		267			3,507		8,262			—			12,036

Income before equity in income from joint ventures and discontinued operations		34,919			26,333		8,942			(35,438	)		34,756
Equity in income from joint ventures		633			—		43			—			676

Income from continuing operations	$	35,552		$	26,333	$	8,985		$	(35,438	)	$	35,432
Discontinued operations:
Income from discontinued operations		—			44		71			—			115
Gain on sale of real estate		—			—		16			—			16

Net income		35,552			26,377		9,072			(35,438	)		35,563
Subtract: Net income attributable to noncontrolling interests		—			—		(11	)		—			(11	)

Net income attributable to Entertainment Properties Trust		35,552			26,377		9,061			(35,438	)		35,552
Preferred dividend requirements		(7,034	)		—		—			—			(7,034	)
Series B preferred share redemption costs		(2,769	)		—		—			—			(2,769	)

Net income available to common shareholders of Entertainment Properties Trust	$	25,749		$	26,377	$	9,061		$	(35,438	)	$	25,749

Condensed Consolidating Statement of Income

For the Three Months Ended September 30, 2010


	Entertainment Properties Trust (Issuer)			Wholly-Owned Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidated Elimination			Consolidated
Rental revenue	$	—		$	19,849		$	36,946		$	—		$	56,795
Tenant reimbursements		—			450			3,703			—			4,153
Other income		26			(1	)		210			—			235
Mortgage and other financing income		113			12,855			327			—			13,295
Intercompany fee income		654			—			—			(654	)		—
Interest income on intercompany notes receivable		3,847			—			554			(4,401	)		—

Total revenue		4,640			33,153			41,740			(5,055	)		74,478
Equity in subsidiaries’ earnings		29,233			—			—			(29,233	)		—

Property operating expense		—			983			5,692			—			6,675
Intercompany fee expense		—			—			654			(654	)		—
Other expense		—			(10	)		350			—			340
General and administrative expense		—			1,759			2,317			—			4,076
Interest expense, net		5,036			2,071			12,120			—			19,227
Interest expense on intercompany notes payable		—			—			4,401			(4,401	)		—
Transaction costs		1			—			10			—			11
Depreciation and amortization		131			3,373			8,078			—			11,582

Income before equity in income from joint ventures and discontinued operations		28,705			24,977			8,118			(29,233	)		32,567
Equity in income (loss) from joint ventures		886			—			(180	)		—			706

Income from continuing operations	$	29,591		$	24,977		$	7,938		$	(29,233	)	$	33,273
Discontinued operations:
Interest income on intercompany notes receivable		5,418			—			—			(5,418	)		—
Interest expense on intercompany notes payable		—			(5,418	)		—			5,418			—
Income (loss) from discontinued operations		—			1,757			(185	)		—			1,572
Transaction costs		—			—			—			—			—
Gain on sale of real estate		—			—			198			—			198

Net income		35,009			21,316			7,951			(29,233	)		35,043

Add: Net loss attributable to noncontrolling interests		—			—			(34	)		—			(34	)

Net income attributable to Entertainment Properties Trust		35,009			21,316			7,917			(29,233	)		35,009
Preferred dividend requirements		(7,552	)		—			—			—			(7,552	)

Net income available to common shareholders of Entertainment Properties Trust	$	27,457		$	21,316		$	7,917		$	(29,233	)	$	27,457

Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2011


	Entertainment Properties Trust (Issuer)			Wholly-Owned Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidated Elimination			Consolidated
Rental revenue	$	—		$	60,154		$	108,101		$	—		$	168,255
Tenant reimbursements		—			1,123			12,473			—			13,596
Other income		69			7			244			—			320
Mortgage and other financing income		318			40,973			590			—			41,881
Intercompany fee income		2,060			—			—			(2,060	)		—
Interest income on intercompany notes receivable		12,558			—			1,806			(14,364	)		—

Total revenue		15,005			102,257			123,214			(16,424	)		224,052
Equity in subsidiaries’ earnings		73,302			—			—			(73,302	)		—

Property operating expense		—			2,997			15,712			—			18,709
Intercompany fee expense		—			—			2,060			(2,060	)		—
Other expense		—			—			1,823			—			1,823
General and administrative expense		—			6,851			8,276			—			15,127
Costs associated with loan refinancing		—			—			6,163			—			6,163
Interest expense, net		14,984			6,197			32,840			—			54,021
Interest expense on intercompany notes payable		—			—			14,364			(14,364	)		—
Transaction costs		1,170			—			327			—			1,497
Impairment charges		—			—			27,115			—			27,115
Depreciation and amortization		799			10,464			24,624			—			35,887

Income (loss) before equity in income from joint ventures and discontinued operations		71,354			75,748			(10,090	)		(73,302	)		63,710
Equity in income from joint ventures		2,177			—			54			—			2,231

Income (loss) from continuing operations	$	73,531		$	75,748		$	(10,036	)	$	(73,302	)	$	65,941
Discontinued operations:
Interest income on intercompany notes receivable		3,755			—			—			(3,755	)		—
Interest expense on intercompany notes payable		—			(3,755	)		—			3,755			—
Income (loss) from discontinued operations		—			1,858			132			—			1,990
Impairment charges		—			—			(8,941	)		—			(8,941	)
Gain on sale of real estate		—			18,293			16			—			18,309

Net income (loss)		77,286			92,144			(18,829	)		(73,302	)		77,299
Subtract: Net income attributable to noncontrolling interests		—			—			(13	)		—			(13	)

Net income (loss) attributable to Entertainment Properties Trust		77,286			92,144			(18,842	)		(73,302	)		77,286
Preferred dividend requirements		(22,138	)		—			—			—			(22,138	)
Series B preferred share redemption costs		(2,769	)		—			—			—			(2,769	)

Net income (loss) available to common shareholders of Entertainment Properties Trust	$	52,379		$	92,144		$	(18,842	)	$	(73,302	)	$	52,379

Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2010


	Entertainment Properties Trust (Issuer)		Wholly-Owned Subsidiary Guarantors			Non- Guarantor Subsidiaries		Consolidated Elimination			Consolidated
Rental revenue	$	—	$	53,495		$	109,843	$	—		$	163,338
Tenant reimbursements		—		1,121			11,322		—			12,443
Other income		76		7			402		—			485
Mortgage and other financing income		349		37,966			585		—			38,900
Intercompany fee income		1,933		—			—		(1,933	)		—
Interest income on intercompany notes receivable		12,790		—			1,613		(14,403	)		—

Total revenue		15,148		92,589			123,765		(16,336	)		215,166
Equity in subsidiaries’ earnings		59,635		—			—		(59,635	)		—

Property operating expense		14		2,656			15,305		—			17,975
Intercompany fee expense		—		—			1,933		(1,933	)		—
Other expense		1		(10	)		725		—			716
General and administrative expense		—		5,753			8,042		—			13,795
Costs associated with loan refinancing		—		11,288			95		—			11,383
Interest expense, net		5,145		9,607			38,315		—			53,067
Interest expense on intercompany notes payable		—		1,372			13,031		(14,403	)		—
Transaction costs		206		—			170		—			376
Provision for loan losses		—		—			700		—