AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 2002.
REGISTRATION NO. 333-87242
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ENTERTAINMENT PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MARYLAND 43-1790877
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization
30 W. PERSHING ROAD, SUITE 201
KANSAS CITY, MISSOURI 64108
(816) 472-1700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GREGORY K. SILVERS, ESQ.
VICE PRESIDENT, SECRETARY, GENERAL COUNSEL
AND CHIEF DEVELOPMENT OFFICER
ENTERTAINMENT PROPERTIES TRUST
30 W. PERSHING ROAD, SUITE 201
KANSAS CITY, MISSOURI 64108
(816) 472-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service).
WITH A COPY TO:
MARC SALLE, ESQ.
KUTAK ROCK LLP
444 WEST 47TH STREET, SUITE 200
KANSAS CITY, MISSOURI 64112
(816) 502-4610
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement pursuant to Rule
415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE FEE(2)(3)
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Common shares of beneficial interest,
preferred shares of beneficial interest,
warrants and debt securities(4)............ $125,000,000 100% $125,000,000 $11,500
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(1) Includes an indeterminate amount and number of common shares, preferred
shares, warrants and debt securities as may be issued at indeterminate
prices, but with an aggregate initial offering price not to exceed
$125,000,000 plus such indeterminate amount and number of common shares as
may be issued upon exercise of warrants or upon conversion of any preferred
shares or debt securities issued hereunder, plus an indeterminate amount and
number of debt securities and/or preferred shares that may be issued upon
exercise of warrants, plus an indeterminate amount and number of preferred
shares that may be issued upon conversion of debt securities. Includes, in
the case of securities issued at an original issue discount, such greater
principal amount as shall result in an aggregate public offering price not
exceeding $125,000,000.
(2) Pursuant to Rule 457(o) under the Securities Act of 1933, the registration
fee is calculated on the maximum offering price of all securities listed,
and the table does not specify information by each class about the amount to
be registered.
(3) $3160 remitted with the original filing of this Form S-3. $8340 previously
remitted in connection with a registration statement on Form S-3 originally
filed by the registrant on May 18, 1999 (File Number 333-78727), which
amount relates to securities remaining unsold in the offering contemplated
thereby and deregistered hereby which is offset against the currently due
filing fee pursuant to Rule 457(p) under the Securities Act of 1933.
(4) Any securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE DATE THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a), DETERMINES.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER, SOLICITATION OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 17, 2002
PROSPECTUS
$125,000,000
ENTERTAINMENT PROPERTIES TRUST
COMMON SHARES, PREFERRED SHARES, WARRANTS AND DEBT SECURITIES
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Entertainment Properties Trust is a self-administered real estate
investment trust formed to invest in entertainment-related properties. EPR's
real estate portfolio is comprised of 31 megaplex theatre properties, including
one joint venture property, located in 12 states, one entertainment-themed
retail center located in Westminster, Colorado, and land parcels and related
properties adjacent to several of our theatre properties.
To preserve our qualification as a real estate investment trust for federal
income tax purposes and for other purposes, we impose restrictions on ownership
of our common and preferred shares. See "Description of Securities" and "Federal
Income Tax Consequences" in this Prospectus.
Through this Prospectus, we may periodically offer common shares of
beneficial interest, preferred shares of beneficial interest, warrants or debt
securities. The maximum aggregate initial public offering price of the
securities we may offer through this Prospectus will be $125,000,000.
The securities may be sold directly or through agents, underwriters or
dealers. If any agent or underwriter is involved in selling the securities, its
name, the applicable purchase price, fee, commission or discount arrangement,
and the net proceeds to the Company from the sale of the securities will be
described in a Prospectus Supplement. See "Plan of Distribution."
Our common shares are traded on the New York Stock Exchange under the
ticker symbol EPR. The last reported sales price of our common shares on May 13,
2002 was $22.90 per share.
We have paid regular quarterly dividends to our common shareholders. See
"About EPR" and "Description of Securities."
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE THE "RISK
FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May , 2002.
TABLE OF CONTENTS
PAGE NO.
--------
About this Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation of Certain Information by Reference........... 1
Forward-Looking Statements.................................. 2
Risk Factors................................................ 3
About EPR................................................... 9
Properties.................................................. 12
Use of Proceeds............................................. 14
Ratio of Earnings to Fixed Charges and Preferred Share
Dividends................................................. 14
Federal Income Tax Consequences............................. 15
Description of Securities................................... 25
Plan of Distribution........................................ 28
Legal Matters............................................... 29
Experts..................................................... 29
ABOUT THIS PROSPECTUS
This Prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission ("SEC") using a "shelf registration" process.
Under this shelf process, Entertainment Properties Trust ("we," "EPR" or the
"Company") may sell any combination of the securities described in this
Prospectus in one or more offerings up to a maximum aggregate offering amount of
$125,000,000.
This Prospectus provides you with a general description of the securities
we may offer. Each time we offer and sell securities, we will provide a
Prospectus Supplement that contains specific information about the terms of the
offering and the securities offered. The Prospectus Supplement may also update
or change information provided in this Prospectus. You should read both this
Prospectus and the applicable Prospectus Supplement and the other information
described in "Where You Can Find More Information" and "Incorporation of Certain
Information by Reference" prior to investing. We may only use this Prospectus to
sell securities if it is accompanied by a Prospectus Supplement.
WHERE YOU CAN FIND MORE INFORMATION
As a public company with securities listed on the New York Stock Exchange
("NYSE"), we must comply with the Securities Exchange Act of 1934 ("Exchange
Act"). This requires that we file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, proxy statements or other information we file at the SEC's Public
Reference Rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 and at the SEC's regional offices at 233 Broadway, New
York, New York 10279 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information. Copies of these materials may be obtained by mail from the Public
Reference Rooms of the SEC. You may also access our SEC filings at the SEC's
Internet website (http://www.sec.gov). You can inspect reports and other
information we file at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
We have filed a registration statement which includes this Prospectus plus
related Exhibits with the SEC under the Securities Act of 1933 (the "Securities
Act"). The registration statement contains additional information about EPR and
the securities. You may view the registration statement and Exhibits on file at
the SEC's website. You may also inspect the registration statement and Exhibits
without charge at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C.
20549, and you may obtain copies from the SEC at prescribed rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this Prospectus. Any statement contained in a document which
is incorporated by reference in this Prospectus is automatically updated and
superseded if information contained in this Prospectus, or information we later
file with the SEC, modifies or replaces that information.
The documents listed below have been filed by EPR under the Exchange Act
(File No. 1-13561) and are incorporated by reference in this Prospectus:
1. EPR's Annual Report on Form 10-K for the year ended December 31,
2001.
2. EPR's Definitive Proxy Statement dated April 18, 2002.
3. EPR's Current Reports on Form 8-K dated February 5, March 15 and
April 12, 2002.
4. EPR's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002.
5. All documents filed by EPR under Section 13(a), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination
of the offering of the securities covered by this Prospectus.
1
To obtain a free copy of any of the documents incorporated by reference in
this Prospectus (other than Exhibits, unless they are specifically incorporated
by reference in the documents) please contact us at:
INVESTOR RELATIONS DEPARTMENT
ENTERTAINMENT PROPERTIES TRUST
30 W. PERSHING ROAD, SUITE 201
KANSAS CITY, MISSOURI 64108
(816) 472-1700
FAX (816) 472-5794
EMAIL info@eprkc.com
Our SEC filings are also available from our Internet website at
http://www.eprkc.com.
As you read these documents, you may find some differences in information
from one document to another. If you find differences between the documents and
this Prospectus, you should rely on the statements made in the most recent
document.
You should rely only on the information contained in this Prospectus or
incorporated by reference. We have not authorized anyone to provide you with
information that is different. We may only use this Prospectus to sell
securities if it is accompanied by a Prospectus Supplement describing those
securities. We are only offering the securities in states where the offer is
permitted. You should not assume the information in this Prospectus or the
applicable Prospectus Supplement is accurate as of any date other than the date
on the front of these documents.
FORWARD-LOOKING STATEMENTS
With the exception of historical information, this Prospectus and our
reports filed under the Exchange Act and incorporated by reference in this
Prospectus contain forward-looking statements, such as those pertaining to the
acquisition and leasing of properties, our capital resources and our results of
operations. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of actual events. There is no
assurance the events or circumstances reflected in the forward-looking
statements will occur. You can identify forward-looking statements by use of
words such as "will be," "intend," "continue," "believe," "may," "expect,"
"hope," "anticipate," "goal," "forecast," or other comparable terms, or by
discussions of strategy, plans or intentions. Forward-looking statements are
necessarily dependent on assumptions, data or methods that may be incorrect or
imprecise. EPR's actual financial condition, results of operations or business
may vary materially from those contemplated by these forward-looking statements
and involve various uncertainties, including but not limited to the factors
described below under "Risk Factors." We caution you not to place undue reliance
on any forward-looking statements, which reflect our analysis only.
2
RISK FACTORS
Before you invest in our securities, you should be aware that purchasing
our securities involves various risks, including those described below. You
should carefully consider these risk factors, together with the other
information in this Prospectus and accompanying Prospectus Supplement, before
purchasing our securities.
RISKS THAT MAY IMPACT OUR FINANCIAL CONDITION OR PERFORMANCE
WE COULD BE ADVERSELY AFFECTED BY A TENANT'S BANKRUPTCY
If a tenant becomes bankrupt or insolvent, that could diminish the income
we expect from that tenant's leases. We may not be able to evict a tenant solely
because of its bankruptcy. On the other hand, a bankruptcy court might authorize
the tenant to terminate its leases with us. If that happens, our claim against
the bankrupt tenant for unpaid future rent would be subject to statutory
limitations that might be substantially less than the remaining rent owed under
the leases. In addition, any claim we have for unpaid past rent would likely not
be paid in full. Two of our tenants, Edwards Theatre Circuits, Inc. (which is
now a division of Regal Entertainment Group) and Lowes Cineplex Entertainment,
have filed for bankruptcy protection, as have other operators.
The development of megaplex movie theatres has rendered many older
multiplex theatres obsolete. To the extent our tenants own a substantial number
of multiplexes, they have been, or may in the future be, required to take
significant charges against earnings resulting from this obsolescence. Megaplex
theatre operators could also be adversely affected by any overbuilding of
megaplex theatres in their markets and the cost of financing, building and
leasing megaplex theatres.
OPERATING RISKS IN THE ENTERTAINMENT INDUSTRY MAY AFFECT THE ABILITY OF OUR
TENANTS TO PERFORM UNDER THEIR LEASES
The ability of our tenants to operate successfully in the entertainment
industry and remain current on their lease obligations depend on a number of
factors, including the availability and popularity of motion pictures, the
performance of those pictures in tenants' markets, the allocation of popular
pictures to tenants and the terms on which the pictures are licensed. Neither we
nor our tenants control the operations of motion picture distributors. Megaplex
theatres represent a greater capital investment, and generate higher rents, than
the previous generation of multiplex theatres. For this reason, the ability of
our tenants to operate profitably and perform under their leases could be
dependent on their ability to generate higher revenues per screen than multiplex
theatres typically produce.
The success of "out-of-home" entertainment venues such as megaplex theatres
and entertainment-themed retail centers also depends on general economic
conditions and the willingness of consumers to spend time and money on
out-of-home entertainment.
A SINGLE TENANT REPRESENTS A SUBSTANTIAL PORTION OF OUR LEASE REVENUES
Approximately 77% of our megaplex theatre properties (including one joint
venture property) are leased to American Multi-Cinema, Inc. ("AMC"), a
subsidiary of AMC Entertainment, Inc. ("AMCE") and one of the nation's largest
movie exhibition companies in terms of revenues and number of screens. Our
property and lease concentration with AMC will increase as a result of several
current and planned theatre acquisitions and leases to AMC. AMCE has guaranteed
AMC's performance under the leases. We have diversified and expect to continue
to diversify our real estate portfolio by entering into lease transactions with
a number of other leading theatre operators. Nevertheless, we expect to continue
acquiring properties from and leasing properties to AMC, and our revenues and
our continuing ability to pay shareholder dividends and interest on any debt
securities we may offer remain substantially dependent on AMC's performance
under its leases and AMCE's performance under its guaranty.
It is also possible that some theatre operators may be reluctant to lease
from us because of our strong relationship with AMC. We believe AMC occupies a
stronger position when compared with other theatre
3
operators and we intend to continue acquiring and leasing back AMC theatres.
However, if for any reason AMC failed to perform under its lease obligations and
AMCE did not perform under its guaranty, we could be required to reduce or
suspend our shareholder dividends and any debt security interest payments, and
may not have sufficient funds to support operations, until substitute tenants
are obtained. If that happened, we cannot predict when or whether we could
obtain substitute quality tenants on acceptable terms. Peter C. Brown, the
Chairman of our Board of Trustees, is Chairman of AMCE. We believe the lease
terms between the Company and AMC are comparable to those available from other
tenants of comparable credit quality. Mr. Brown does not participate in
discussions between the Company and AMC regarding acquisitions of AMC properties
or lease terms concerning AMC properties.
THERE IS RISK IN USING DEBT TO FUND PROPERTY ACQUISITIONS
We have used debt to acquire properties and expect to continue to do so in
the future. Although the use of debt (known as "leverage") is common in the real
estate industry, our use of debt to acquire properties does expose us to some
risks. If a significant number of our tenants fail to make their lease payments
and we don't have sufficient cash to pay principal and interest on the debt, we
could default on our debt obligations. Our debt financing is secured by
mortgages on our properties. If we fail to make our mortgage payments, the
lenders could declare a default and foreclose on those properties.
A PORTION OF OUR SECURED DEBT HAS "HYPER-AMORTIZATION" PROVISIONS WHICH MAY
REQUIRE US TO REFINANCE THE DEBT OR SELL THE PROPERTIES SECURING THE DEBT PRIOR
TO MATURITY
As of December 31, 2001, we had approximately $100 million outstanding
under secured mortgage arrangements which contain "hyper-amortization" features
which will start coming due in 2008. In these loans, the principal payment
schedule is rapidly accelerated, and our principal payments are substantially
increased, after a period of time but prior to the maturity date of the loan. We
undertook this debt on the assumption that we can refinance the debt when these
hyper-amortization payments become due. If we cannot obtain acceptable
refinancing at the appropriate time, the hyper-amortization payments will
require that substantially all of the revenues from the properties securing the
debt be applied to the debt repayment, which would substantially reduce our
common share dividend rate and could adversely affect our financial condition
and liquidity and our ability to pay any preferred share dividends or interest
payments on any debt securities.
WE MUST OBTAIN NEW FINANCING IN ORDER TO GROW
As a REIT, we are required to distribute at least 90% of our net income to
shareholders in the form of dividends. This means we are limited in our ability
to use internal capital to acquire properties and must continually raise new
capital in order to continue to grow and diversify our real estate portfolio.
Our ability to raise new capital depends in part on factors beyond our control,
including conditions in equity and credit markets, conditions in the cinema
exhibition industry and the performance of real estate investment trusts
generally. We continually consider and evaluate a variety of potential
transactions to raise additional capital, but we cannot assure that attractive
alternatives will always be available to us, nor that our common share price
will increase or remain at a level that will permit us to continue to raise
equity capital privately or publicly.
IF WE FAIL TO QUALIFY AS A REIT WE WOULD BE TAXED AS A CORPORATION, WHICH WOULD
SUBSTANTIALLY REDUCE FUNDS AVAILABLE FOR PAYMENT OF DIVIDENDS TO OUR
SHAREHOLDERS
If we fail to qualify as a REIT for federal income tax purposes, we will be
taxed as a corporation. We are organized and believe we qualify as a REIT, and
intend to operate in a manner that will allow us to continue to qualify as a
REIT. However, we cannot assure you that we will remain qualified in the future.
This is because qualification as a REIT involves the application of highly
technical and complex provisions of the Internal Revenue Code on which there are
only limited judicial and administrative interpretations, and depends on facts
and circumstances not entirely within our control. In addition, future
legislation, new regulations, administrative interpretations or court decisions
may significantly change the tax laws, the application of the tax laws to our
qualification as a REIT or the federal income tax consequences of that
qualification.
4
If we fail to qualify as a REIT we will face tax consequences that will
substantially reduce the funds available for payment of dividends:
- We would not be allowed a deduction for dividends paid to shareholders in
computing our taxable income and would be subject to federal income tax
at regular corporate rates
- We could be subject to the federal alternative minimum tax and possibly
increased state and local taxes
- Unless we are entitled to relief under statutory provisions, we could not
elect to be treated as a REIT for four taxable years following the year
in which we were disqualified
In addition, if we fail to qualify as a REIT, we will no longer be required to
pay dividends (other than any mandatory dividends on any preferred shares we may
offer). As a result of these factors, our failure to qualify as a REIT could
adversely affect the market price for our common shares and the value of any
preferred shares and warrants we may offer.
RISKS THAT APPLY TO OUR REAL ESTATE BUSINESS
THERE ARE RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE
Although our lease terms obligate the tenants to bear substantially all of
the costs of operating the properties, investing in real estate involves a
number of risks, including:
- The risk that tenants will not perform under their leases, reducing our
income from the leases or requiring us to assume the cost of performing
obligations (such as taxes, insurance and maintenance) that are the
tenant's responsibility under the lease
- The risk that changes in economic conditions or real estate markets may
adversely affect the value of our properties
- The risk that local conditions (such as oversupply of megaplex theatres
or other entertainment-related properties) could adversely affect the
value of our properties
- We may not always be able to lease properties at favorable rates
- We may not always be able to sell a property when we desire to do so at a
favorable price
- Changes in tax, zoning or other laws could make properties less
attractive or less profitable
If a tenant fails to perform on its lease covenants, that would not excuse us
from meeting any mortgage debt obligation secured by the property and could
require us to fund reserves in favor of our mortgage lenders, thereby reducing
funds available for payment of dividends on our shares and interest payments on
any debt securities we may offer. We cannot be assured that tenants will elect
to renew their leases when the terms expire. If a tenant does not renew its
lease or if a tenant defaults on its lease obligations, there is no assurance we
could obtain a substitute tenant on acceptable terms. If we cannot obtain
another quality movie exhibitor to lease a megaplex theatre property, we may be
required to modify the property for a different use, which may involve a
significant capital expenditure and a delay in re-leasing the property.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE
Our leases require the tenants to carry comprehensive liability, casualty,
workers' compensation, extended coverage and rental loss insurance on our
properties. We believe the required coverage is of the type, and amount,
customarily obtained by an owner of similar properties. We believe all of our
properties are adequately insured. However, there are some types of losses, such
as catastrophic acts of nature, for which we or our tenants cannot obtain
insurance at an acceptable cost. If there is an uninsured loss or a loss in
excess of insurance limits, we could lose both the revenues generated by the
affected property and the capital we have invested in the property. We would,
however, remain obligated to repay any mortgage indebtedness or other
obligations related to the property.
5
JOINT VENTURES MAY LIMIT FLEXIBILITY WITH JOINTLY OWNED INVESTMENTS
We have an interest in an unconsolidated joint venture that owns a megaplex
theatre property and may acquire or develop additional properties in joint
ventures with third parties when those transactions appear desirable. We would
not own the entire interest in any property acquired by a joint venture. If we
have a dispute with a joint venture partner, we may feel it necessary or become
obligated to acquire the partner's interest in the venture. However, we cannot
assure you that the price we would have to pay or the timing of the acquisition
would be favorable to us. If we own less than a 50% interest in a joint venture,
or if the joint venture is jointly controlled, the assets and financial results
of the joint venture may not be reportable by us on a consolidated basis, and
the liabilities of the joint venture may not be included within the liabilities
reported on our consolidated balance sheet. To the extent we owe commitments to,
or are dependent on, any such "off-balance sheet" arrangements, or if those
arrangements or their properties or leases are subject to material
contingencies, our liquidity, financial condition and operating results could be
adversely affected by those off-balance sheet arrangements.
WE FACE ADDITIONAL RISKS IF WE DEVELOP PROPERTIES
Our entertainment-themed retail center ("ETRC") in Westminster, Colorado
and similar properties we may seek to develop in the future involve risks not
typically encountered in the purchase and lease-back of megaplex theatres which
are developed by the operator. The ownership or development of retail centers
exposes us to the risk that a sufficient number of suitable tenants may not be
found to enable the center to operate profitably and provide a return to us.
Retail centers are also subject to fluctuations in occupancy rates, which could
affect our operating results.
FAILURE TO COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND OTHER LAWS COULD
RESULT IN SUBSTANTIAL COSTS
The operators of our properties must comply with the Americans with
Disabilities Act ("ADA"). The ADA requires that public accommodations reasonably
accommodate individuals with disabilities and that new construction or
alterations be made to commercial facilities to conform to accessibility
guidelines. Failure to comply with the ADA can result in injunctions, fines,
damage awards to private parties and additional capital expenditures to remedy
noncompliance. Our leases require the tenants to comply with the ADA, and we
believe our tenants provide disabled access in compliance with the ADA.
The operators of our properties are also subject to various other federal,
state and local regulatory requirements. We believe the properties are in
material compliance with all applicable regulatory requirements. However, we do
not know whether existing requirements will change or whether compliance with
future requirements will involve significant unanticipated expenditures.
Although these expenditures would be the responsibility of our tenants, if
tenants fail to perform these obligations, we may be required to do so.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN
SUBSTANTIAL COSTS
Under federal, state and local environmental laws, we may be required to
investigate and clean up any release of hazardous or toxic substances or
petroleum products at our properties, regardless of our knowledge or actual
responsibility, simply because of our current or past ownership of the real
estate. If unidentified environmental problems arise, we may have to make
substantial payments, which could adversely affect our cash flow and our ability
to make distributions to our shareholders. This is so because:
- As owner we may have to pay for property damage and for investigation and
clean-up costs incurred in connection with the contamination
- The law may impose clean-up responsibility and liability regardless of
whether the owner or operator knew of or caused the contamination
- Even if more than one person is responsible for the contamination, each
person who shares legal liability under environmental laws may be held
responsible for all of the clean-up costs
6
- Governmental entities and third parties may sue the owner or operator of
a contaminated site for damages and costs
These costs could be substantial and in extreme cases could exceed the value of
the contaminated property. The presence of hazardous substances or petroleum
products or the failure to properly remediate contamination may adversely affect
our ability to borrow against, sell or lease an affected property. In addition,
some environmental laws create liens on contaminated sites in favor of the
government for damages and costs it incurs in connection with a contamination.
Our leases require the tenants to operate the properties in compliance with
environmental laws and to indemnify us against environmental liability arising
from the operation of the properties. We believe all of our properties are in
material compliance with environmental laws. However, we could be subject to
strict liability under environmental laws because we own the properties. There
is also a risk that tenants may not satisfy their environmental compliance and
indemnification obligations under the leases. Any of these events could
substantially increase our cost of operations, require us to fund environmental
indemnities in favor of our secured lenders and reduce our ability to service
our secured debt and pay dividends to shareholders and any debt security
interest payments. Environmental problems at any properties could also put us in
default under loans secured by those properties, as well as loans secured by
unaffected properties.
REAL ESTATE INVESTMENTS ARE RELATIVELY NON-LIQUID
We may desire to sell a property in the future because of changes in market
conditions or poor tenant performance or to avail ourselves of other
opportunities. We may also be required to sell a property in the future to meet
secured debt, preferred share dividend and any debt security interest
obligations or to avoid a secured debt loan default. Specialty real estate
projects such as megaplex theatres cannot always be sold quickly, and we cannot
assure you that we could always obtain a favorable price. We may be required to
invest in the restoration or modification of a property before we can sell it.
RISKS THAT MAY AFFECT THE MARKET PRICE OF OUR SECURITIES
WE CANNOT ASSURE YOU WE WILL CONTINUE PAYING DIVIDENDS AT HISTORICAL RATES
Our ability to continue paying dividends on our common shares at historical
rates or to increase our common share dividend rate, and our ability to pay
preferred share dividends and interest on debt securities, will depend on a
number of factors, including our financial condition and results of future
operations, the performance of lease terms by tenants, provisions in our secured
loan covenants, and, in the case of common share dividends, our ability to
acquire, finance and lease additional properties at attractive rates. If we do
not maintain or increase the dividend rate on our common shares, that could have
an adverse effect on the market price of our common shares and other securities.
Any preferred shares we may offer may have a fixed dividend rate which would not
increase with any increases in the dividend rate on our common shares.
Conversely, payment of dividends on our common shares may be subject to payment
in full of the dividends on any preferred shares and payment of interest on any
debt securities we may offer.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR SECURITIES
One of the factors that investors may consider in deciding whether to buy
or sell our securities is our dividend rate as a percentage of our share or unit
price, relative to market interest rates. If market interest rates increase,
prospective investors may desire a higher dividend or interest rate on our
securities or seek securities paying higher dividends or interest.
MARKET PRICES FOR OUR SECURITIES MAY BE AFFECTED BY PERCEPTIONS ABOUT THE
FINANCIAL HEALTH OR SHARE VALUE OF OUR TENANTS OR THE PERFORMANCE OF REIT
STOCKS GENERALLY.
To the extent any of our tenants or other movie exhibitors report losses or
slower earnings growth, take charges against earnings resulting from the
obsolescence of multiplex theatres or enter bankruptcy proceed-
7
ings, the market price for our securities could be adversely affected. The
market price for our securities could also be affected by any weakness in movie
exhibitor stocks generally. We believe these trends had an adverse impact on our
common share price in 2000 and 2001 and could have an adverse impact in the
future if those trends persist in the cinema exhibition industry.
LIMITS ON CHANGES IN CONTROL MAY DISCOURAGE TAKEOVER ATTEMPTS WHICH MAY BE
BENEFICIAL TO OUR SHAREHOLDERS
There are a number of provisions in our Declaration of Trust, Maryland law
and agreements we have with others which could make it more difficult for a
party to make a tender offer for our common shares or complete a takeover of EPR
which is not approved by our Board of Trustees. These include:
- A staggered Board of Trustees that can be increased in number without
shareholder approval
- A limit on beneficial ownership of our shares, which acts as a defense
against a hostile takeover or acquisition of a significant or controlling
interest, in addition to preserving our REIT status
- The ability of the Board of Trustees to issue preferred shares, including
any preferred shares offered by this Prospectus, or reclassify preferred
or common shares, without shareholder approval
- Limits on the ability of shareholders to remove trustees without cause
- Requirements for advance notice of shareholder proposals at annual
shareholder meetings
- Provisions of Maryland law restricting business combinations and control
share acquisitions not approved by the Board of Trustees
- AMCE's ability to terminate a Right to Purchase Agreement for additional
megaplex theatre properties if there is a change in control of EPR
- Provisions of Maryland law limiting a court's ability to scrutinize the
trustees' exercise of their business judgment in the event of a hostile
takeover
- Provisions in secured loan or joint venture agreements putting EPR in
default upon a change in control
- Provisions of employment agreements with our officers calling for share
purchase loan forgiveness upon a hostile change in control
Any or all of these provisions could delay or prevent a change in control of
EPR, even if the change was in our shareholders' interest or offered a greater
return to our shareholders.
The market price for our common shares could be adversely affected by any
preferred shares, warrants or debt securities we may offer. If we offer any
preferred shares, warrants or debt securities on terms which are not deemed
accretive to our common shareholders, that may adversely affect the market price
for our common shares. In addition, the issuance of warrants may create a
significant market "overhang" which could be dilutive to our common shareholders
and adversely affect our common share price.
RISKS OF OWNING PREFERRED
SHARES, WARRANTS OR DEBT SECURITIES
There may not be a market for our preferred shares, warrants or debt
securities. We may or may not apply to list any preferred shares, warrants or
debt securities we offer for trading on the New York Stock Exchange. At the
present time, there is no public market for any of our securities other than our
common shares. We cannot assure you there will be a public market for any
preferred shares, warrants or debt securities we may offer. If a public market
does not develop for our preferred shares, warrants or debt securities, they may
represent a non-liquid investment.
Holders of our preferred shares may have no voting rights with respect to
those shares. We anticipate that any preferred shares we may offer may be
non-voting. For this reason, holders of preferred shares may have no voice in
the election of trustees or any other matters submitted to a vote of our common
shareholders.
8
Any preferred shares or debt securities may not be convertible into or
exchangeable for common shares. We may offer preferred shares or debt securities
which are not convertible into or exchangeable for common shares. If there is no
market for our preferred shares or debt securities, the holders of those
securities may not have the right to exchange them for a security for which
there is a market.
If you purchase debt securities, you will be an unsecured creditor behind
the holders of our senior debt. Any debt securities we may offer will be
unsecured obligations of the Company and will be junior in payment to all
existing and future mortgage indebtedness of the Company. The holders of any
debt securities may have no access to our assets if we default in payment of any
interest or principal under the debt securities. All of our existing senior debt
is secured by mortgages on our properties, and we anticipate that any additional
senior debt we may obtain in the future would also be secured by mortgages. If
we liquidate, dissolve or enter bankruptcy proceedings, the holders of our
senior secured debt would be entitled to be paid before the holders of any of
our debt securities.
Our secured debt covenants may restrict our ability to pay dividends on
preferred shares and interest on debt securities. Our existing secured debt
covenants limit our common share dividend rate to 90% of Funds from Operations
("FFO"). (FFO is generally defined as net income plus depreciation and certain
other non-cash items.) The dividend rate we may pay on any preferred shares and
the interest rate we may pay on any debt securities we offer may be subject to
similar restrictions. Our secured loan covenants may also restrict us from
paying interest on debt securities until principal and interest under the
secured loans are paid or provided for.
Warrants may not be "in the money" after they are issued. Purchasers of
any warrants we may issue will be subject to the risk that our common share
price may decrease below the exercise price of the warrants, which would make it
uneconomical to exercise the warrants and thus adversely affect the value of the
warrants.
ABOUT EPR
BUSINESS
EPR was formed in 1997 as a Maryland real estate investment trust ("REIT")
to capitalize on opportunities created by the development of destination
entertainment and entertainment-related properties, including megaplex movie
theatre complexes. We completed an initial public offering of our shares on
November 18, 1997. We are the first publicly-traded REIT formed exclusively to
invest in entertainment-related properties.
EPR is a self-administered REIT. As of April 22, 2002, our real estate
portfolio consists of 31 megaplex theatre properties (including one joint
venture property) located in 12 states, one ETRC located in Westminster,
Colorado, and land parcels and related properties adjacent to several of our
theatre properties. Our theatre properties are leased to prominent theatre
operators, including AMC, Muvico Entertainment LLC ("Muvico"), Edwards Theatre
Circuits, Inc., a division of Regal Entertainment Group ("Edwards"),
Consolidated Theatres ("Consolidated") and Lowes Cineplex Entertainment
("Lowes").
Megaplex theatres typically have at least 14 screens with stadium-style
seating (seating with elevation between rows to provide unobstructed viewing)
and are equipped with amenities that significantly enhance the audio and visual
experience of the patron. We believe the development of megaplex theatres has
accelerated the obsolescence of many existing movie theatres by setting new
standards for moviegoers, who, in our experience, have demonstrated their
preference for the more attractive surroundings, wider variety of films and
superior customer service typical of megaplex theatres (see "Operating risks in
the entertainment industry may affect the ability of our tenants to perform
under their leases" and "Market prices for our securities may be affected by
perceptions about the financial health or share value of our tenants or the
performance of REIT stocks generally" under "Risk Factors").
We expect the development of megaplex theatres to continue in the United
States and abroad for the foreseeable future. With the development of the
stadium style megaplex theatre as the preeminent store
9
format for cinema exhibition, the older generation of flat-floor theatres has
generally experienced a significant downturn in attendance and performance. As a
result of the significant capital commitment involved in building these new
properties and the experience and industry relationships of our management, we
believe we will continue to have opportunities to provide capital to businesses
that seek to develop and operate these properties but would prefer to lease
rather than own the properties in order to minimize the impact of real estate
ownership on their balance sheets. We believe our ability to finance these
properties will enable us to continue to grow and diversify our asset base.
BUSINESS OBJECTIVES AND STRATEGIES
Our principal business strategy is to continue acquiring high-quality
properties leased to leading entertainment and entertainment-related business
operators, generally under long-term triple-net leases that require the tenant
to pay substantially all expenses associated with the operation and maintenance
of the property.
Our business objective is to continue enhancing shareholder value by
achieving predictable and increasing FFO per share through the acquisition of
high-quality properties leased to entertainment and entertainment-related
business operators. We intend to achieve this objective by continuing to execute
the Growth Strategies, Operating Strategies and Capitalization Strategies
described below:
GROWTH STRATEGIES
FUTURE PROPERTIES
We intend to continue pursuing acquisitions of high-quality
entertainment-related properties from operators with a strong market presence.
As a part of our growth strategy, we will consider developing additional
megaplex theatre properties and developing or acquiring ETRCs and single-tenant,
out-of-home, location-based entertainment and entertainment-related properties.
OPERATING STRATEGIES
LEASE RISK MINIMIZATION
To avoid initial lease-up risks and produce a predictable income stream, we
typically acquire single-tenant properties that are leased under long-term
leases. We believe our willingness to make long-term investments in properties
offers tenants financial flexibility and allows tenants to allocate capital to
their core businesses.
LEASE STRUCTURE
We typically structure leases on a triple-net basis under which the tenants
bear the principal portion of the financial and operational responsibility for
the properties. During each lease term and any renewal periods, the leases
typically provide for periodic increases in rent and/or percentage rent based
upon a percentage of the tenant's gross sales over a pre-determined level.
TENANT RELATIONSHIPS
We intend to continue developing and maintaining long-term working
relationships with theatre, restaurant and other entertainment-related business
operators and developers by providing capital for multiple properties on a
national or regional basis, thereby enhancing efficiency and value to those
operators and to the Company.
PORTFOLIO DIVERSIFICATION
We will endeavor to further diversify our asset base by property type,
geographic location and tenant. In pursuing this diversification strategy, we
will target theatre, restaurant, retail and other entertainment-related
10
business operators which management views as leaders in their market segments
and which have the financial strength to compete effectively and perform under
their leases with us.
CAPITALIZATION STRATEGIES
USE OF LEVERAGE; DEBT TO TOTAL CAPITALIZATION
We seek to enhance shareholder return through the use of leverage (see
"Risk Factors -- "There is risk in using debt to fund property acquisitions").
In addition, we have issued and may in the future seek to issue additional
equity as circumstances warrant and opportunities to do so become available. We
expect to maintain a debt to total capitalization ratio (i.e., total debt of the
Company as a percentage of shareholders' equity plus total debt) of
approximately 50% to 55%.
JOINT VENTURES
We will examine and pursue potential joint venture opportunities with
institutional investors or developers if they are considered to add value to our
shareholders. We may employ higher leverage in joint ventures (see "Risk
Factors -- Joint ventures may limit flexibility with jointly held investments").
PAYMENT OF REGULAR DISTRIBUTIONS
We have paid and expect to continue paying quarterly dividend distributions
to our shareholders. Among the factors the Board of Trustees considers in
setting our common share dividend rate are the applicable REIT rules and
regulations that apply to distributions, the Company's results of operations,
including FFO per share, and the Company's Cash Available for Distribution. We
expect to periodically increase distributions on our common shares as FFO and
Cash Available for Distribution increase and as other considerations and factors
warrant (see "Risk Factors -- We cannot assure you we will continue paying
dividends at historical rates").
11
PROPERTIES
The following table lists the Company's properties, their locations,
acquisition dates, number of theatre screens, number of seats, gross square
footage, and the tenant. Except as otherwise noted, all of the real estate
investments listed below are owned or ground leased directly by the Company.
ACQUISITION BUILDING
PROPERTY LOCATION DATE SCREENS SEATS (GROSS SQ. FT) TENANT
-------- ----------------- ----------- ------- ------- -------------- ---------------
MEGAPLEX THEATRE PROPERTIES
Grand 24(3)................. Dallas, TX 11/97 24 5,067 98,175 AMC
Mission Valley 20(1)(3)..... San Diego, CA 11/97 20 4,361 84,352 AMC
Promenade 16(3)............. Los Angeles, CA 11/97 16 2,860 129,822 AMC
Ontario Mills 30(3)......... Los Angeles, CA 11/97 30 5,469 131,534 AMC
Lennox 24(1)(3)............. Columbus, OH 11/97 24 4,412 98,261 AMC
West Olive 16(3)............ St. Louis, MO 11/97 16 2,817 60,418 AMC
Studio 30(3)................ Houston, TX 11/97 30 6,032 136,154 AMC
Huebner Oaks 24(3).......... San Antonio, TX 11/97 24 4,400 96,004 AMC
First Colony 24(1)(6)....... Houston, TX 11/97 24 5,098 107,690 AMC
Oakview 24(6)............... Omaha, NE 11/97 24 5,098 107,402 AMC
Leawood Town Center 20(6)... Kansas City, MO 11/97 20 2,995 75,224 AMC
Gulf Pointe 30(2)(6)........ Houston, TX 2/98 30 6,008 130,891 AMC
South Barrington 30(6)...... Chicago, IL 3/98 30 6,210 130,891 AMC
Cantera 30(2)(5)............ Chicago, IL 3/98 30 6,210 130,757 AMC
Mesquite 30(2)(6)........... Dallas, TX 4/98 30 6,008 130,891 AMC
Hampton Town Center 24(6)... Norfolk, VA 6/98 24 5,098 107,396 AMC
Raleigh Grand 16(4)......... Raleigh, NC 8/98 16 2,596 51,450 Consolidated
Pompano 18(4)............... Pompano Beach, FL 8/98 18 3,424 73,637 Muvico
Paradise 24(6).............. Davie, FL 11/98 24 4,180 96,497 Muvico
Boise Stadium(1)(4)......... Boise, ID 12/98 20 4,734 140,300 Edwards
Aliso Veijo 20(6)........... Los Angeles, CA 12/98 20 4,352 98,557 Edwards
Westminster 24(7)........... Westminster, CO 6/99 24 4,812 107,000 AMC
Woodridge 18(2)(8).......... Woodridge, IL 6/99 18 4,343 80,600 Lowes
Tampa Palms 20(8)........... Tampa, FL 6/99 20 4,200 83,000 Muvico
Palm Promenade 24(8)........ San Diego, CA 1/00 24 4,577 88,610 AMC
Crossroads 20(8)............ Raleigh, NC 1/00 20 3,936 77,475 Consolidated
Elmwood Palace 20(9)........ New Orleans, LA 3/02 20 4,357 90,391 AMC
Clearview Palace 12(9)...... New Orleans, LA 3/02 12 2,479 70,000 AMC
Hammond Palace 10(9)........ New Orleans, LA 3/02 10 1,531 39,850 AMC
Houma Palace 10(9).......... New Orleans, LA 3/02 10 1,871 44,450 AMC
WestBank Palace 16(9)....... New Orleans, LA 3/02 16 3,176 71,607 AMC
--- ------- ---------
SUBTOTAL MEGAPLEX THEATRES................................... 668 132,711 2,969,286
=== ======= =========
12
ACQUISITION BUILDING
PROPERTY LOCATION DATE SCREENS SEATS (GROSS SQ. FT) TENANT
-------- ----------------- ----------- ------- ------- -------------- ---------------
RETAIL AND RESTAURANT PROPERTIES
Westminster Promenade....... Westminster, CO 10/98 -- -- 140,000 Multi-Tenant
Pompano Kmart(8)............ Pompano Beach, FL 11/98 -- -- 80,540 Kmart
Nickels Restaurant(8)....... Pompano Beach, FL 11/98 -- -- 5,600 Nickels
On-The-Border(8)............ Dallas, TX 1/99 -- -- 6,580 Brinkers
Bennigan's(8)............... Houston, TX 5/00 -- -- 6,575 S & A
Bennigan's(8)............... Dallas, TX 5/00 -- -- 6,575 S & A
Texas Land & Cattle(8)...... Houston, TX 5/00 -- -- 6,600 Tx.C.C., Inc.
Texas Roadhouse(8).......... Dallas, TX 1/99 -- -- 6,000 TX Roadhouse
Roadhouse Grill(8).......... Atlanta, GA 8/00 -- -- 6,850 Roadhouse Grill
--- ------- ---------
Subtotal................ 265,320
--- ------- ---------
TOTAL...................................................... 668 132,711 3,234,606
=== ======= =========
---------------
(1) Third party ground leased property. Although the Company is the tenant under
the ground leases and has assumed responsibility for performing the
obligations thereunder, pursuant to the Leases, the theatre tenants are
responsible for performing the Company's obligations under the ground
leases.
(2) In addition to the theatre property itself, the Company has acquired land
parcels adjacent to the theatre property, which the Company has or intends
to ground lease or sell to restaurant or other entertainment themed
operators.
(3) Property is included as security for a $105 million mortgage facility.
(4) Property is included as security for a $20 million mortgage facility.
(5) Property is included in the Atlantic-EPR joint venture.
(6) Property is included as security for a $125 million mortgage facility.
(7) Property is included as security for a $17 million mortgage.
(8) Property is included as security for a $75 million credit facility.
(9) Property will be included as security for a $50 million credit facility.
OFFICE LOCATION
Our executive office is located in Kansas City, Missouri and is leased from
a third party landlord. The office occupies approximately 5,200 square feet with
an initial rent of $107,856 subject to annual escalations.
TENANTS AND LEASES
Our existing leases on megaplex theatres provide for aggregate annual
rentals of approximately $56.9 million (on a consolidated basis, excluding one
joint venture property), or an average annual rental of approximately $2.2
million per property. The leases have an average remaining base term lease life
of 13.0 years and may be extended for predetermined extension terms at the
option of the tenant. The leases are typically triple-net leases that require
the tenant to pay substantially all expenses associated with the operation of
the properties, including taxes, other governmental charges, insurance,
utilities, service, maintenance and any ground lease payments.
13
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, EPR
intends to use the net proceeds from any sale of common shares, preferred
shares, warrants or debt securities for general corporate purposes, including
the acquisition of properties and/or repayment of debt. Further details relating
to the use of net proceeds of any specific offering will be described in the
applicable Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table describes the ratios of earnings to fixed charges and
preferred share dividends of EPR.
For the purpose of calculating the ratios:
Earnings are computed by adding
- pretax income from continuing operations before adjustment for income
from unconsolidated joint venture(s), plus
- fixed charges, plus
- amortization of capitalized interest, plus
- distributed income from unconsolidated joint venture(s), and
subtracting
- interest capitalized
Fixed charges include
- interest on all debt, expensed and capitalized
- amortized premiums, discounts and capitalized expenses related to
indebtedness
- an estimate of the interest component of rental expense
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred share dividends, preferred share dividends include the amount of
pre-tax earnings required to pay the dividends on any outstanding preferred
shares.
YEARS ENDED DECEMBER 31
-------------------------------------------------
THREE MONTHS
ENDED
1997 1998 1999 2000 2001 MARCH 31, 2002
---- ---- ---- ---- ---- --------------
Ratio of earnings to fixed charges(1)(2)....... N/A 3.7 2.6 2.2 2.0 2.1
Ratio of earnings to combined fixed charges and
preferred share dividends(1)................. -- -- -- -- -- --
--- --- --- --- --- --------
---------------
(1) Assumes no preferred shares or debt securities are outstanding. If we offer
any preferred shares or debt securities, this table will be adjusted for the
issuance of those securities in the applicable Prospectus Supplement.
14
(2) The following computations were made in preparing this table:
YEARS ENDED DECEMBER 31
---------------------------------------------------------------
THREE MONTHS
ENDED
1997 1998 1999 2000 2001 MARCH 31, 2002
------ ------- ------- ------- ------- --------------
(DOLLARS IN THOUSANDS)
FIXED CHARGES
Net interest expense............ $ -- $ 6,461 $13,278 $18,909 $20,334 $ 5,733
Add: preference security
dividend in consolidated
subsidiary.................... -- -- -- -- -- 70
Add: interest income............ -- 149 160 247 268 217
Add: capitalized interest....... -- 397 476 664 881 255
------ ------- ------- ------- ------- -------
TOTAL FIXED CHARGES............. $ -- $ 7,007 $13,914 $19,820 $21,483 $ 6,275
====== ======= ======= ======= ======= =======
EARNINGS
Pretax income before minority
interest and income from joint
venture....................... $1,442 $19,238 $22,880 $22,068 $21,377 $ 6,752
Add: fixed charges.............. -- 7,007 13,914 19,820 21,483 6,275
Add: minority interest
dividends..................... -- -- -- -- -- 70
------ ------- ------- ------- ------- -------
Add: cash distributions from
joint venture................. -- -- 411 1,442 1,848 456
------ ------- ------- ------- ------- -------
Subtract: capitalized
interest...................... -- (397) (476) (664) (881) (255)
------ ------- ------- ------- ------- -------
Subtract: preference security
dividend in consolidated
subsidiary.................... -- -- -- -- -- (70)
====== ======= ======= ======= ======= =======
TOTAL EARNINGS.................. $1,442 $25,848 $36,729 $42,666 $43,827 $13,048
====== ======= ======= ======= ======= =======
FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences is based
on current law and does not intend to deal with all aspects of taxation that may
be relevant to particular shareholders in light of their personal investment or
tax circumstances, or to certain types of shareholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the federal income tax laws.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF SHARES.
EPR believes it has operated in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). EPR intends to continue
to satisfy those requirements. No assurance can be given, however, that these
requirements will be met.
The provisions of the Code and the Treasury Regulations thereunder relating
to qualification and operation as a REIT are highly technical and complex. The
following describes the material aspects of the laws that govern the federal
income tax treatment of a REIT and its shareholders. This summary is qualified
in its entirety by the applicable Code provisions, rules and Treasury
Regulations thereunder, and administrative and judicial interpretations thereof.
Kutak Rock LLP has acted as tax counsel to the Company in connection with the
Company's election to be taxed as a REIT.
In the opinion of Kutak Rock LLP, commencing with the Company's taxable
year that ended on December 31, 1997, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has and will enable it to continue to meet the requirements for
15
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
factual representations made by EPR. Moreover, our qualification and taxation as
a REIT depend upon our ability to meet, through actual annual operating results,
distribution levels and diversity of share ownership, and various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by Kutak Rock LLP. Accordingly, no assurance can be given that the
actual results of our operations for any particular taxable year will satisfy
these requirements (See "Failure to Qualify").
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are satisfied, entities such as EPR that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations are generally not taxed at the corporate level on their "REIT
Taxable Income" (generally the REIT's taxable income adjusted for, among other
things, the disallowance of the dividends-received deduction generally available
to corporations) that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and shareholder levels) that generally results from investing in
corporations.
If EPR fails to qualify as a REIT in any year, however, we will be subject
to federal income tax as if we were a domestic corporation, and our shareholders
will be taxed in the same manner as shareholders of ordinary corporations. In
this event, EPR could be subject to potentially significant tax liabilities and
the amount of cash available for distribution to our shareholders could be
reduced.
TAXATION OF THE COMPANY
GENERAL
In any year in which EPR qualifies as a REIT, in general, we will not be
subject to federal income tax on that portion of our net income that we
distribute to shareholders. However, EPR will be subject to federal income tax
in these regards: (a) EPR will be taxed at regular corporate rates on any
undistributed REIT Taxable Income, including undistributed net capital gains.
(However, a REIT can elect to "pass through" any of its taxes paid on its
undistributed net capital gain to its shareholders on a pro rata basis), (2)
under certain circumstances, EPR may be subject to the "alternative minimum tax"
on its items of tax preference, (3) if EPR has: (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business; or (ii) other nonqualifying income
from foreclosure property, we will be subject to tax at the highest corporate
rate on such income, (4) if EPR has net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other than
property held for at least four years, foreclosure property and property
involuntarily converted), such income will be subject to a 100% tax, (5) if EPR
fails to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, we will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which EPR fails the 75% gross income test or the 95% gross income
test, multiplied by (b) a fraction intended to reflect EPR's profitability, (6)
if EPR fails to distribute during each calendar year at least the sum of: (i)
85% of its ordinary income for that year; (ii) 95% of its capital gain net
income for that year; and (iii) any undistributed taxable income from prior
periods, EPR would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed, (7) if EPR acquires any
asset from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in EPR's
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and EPR recognizes gain on the
disposition of such asset during the 10 year period beginning on the date on
which that asset was acquired by EPR, then, to the extent of any built-in gain
at the time of acquisition, such gain will be subject to tax at the highest
regular corporate rate.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors, (2) the beneficial ownership of
which is evidenced by transferable shares, or by
16
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation but for Sections 856 through 860 of the Code, (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons (the "100 person test"), (6) not more than 50% in value of the
outstanding shares of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code) at any time during the last half of each
taxable year (the "closely-held test"), and (7) which meets certain other tests,
described below, regarding the nature of income and assets. The Code provides
that conditions (1) through (4) must be met during the entire taxable year and
that condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (5) and (6) did not apply until after the first taxable year for
which an election was made by EPR to be taxed as a REIT. A REIT's failure to
satisfy condition (6) during a taxable year will not result in its
disqualification as a REIT under the Code for that taxable year as long as (i)
the REIT satisfies the shareholder demand statement requirements described in
the succeeding paragraph and (ii) the REIT did not know, or exercising
reasonable diligence, would not have known, whether it had failed condition (6).
A REIT must also report its income for federal income tax purposes based on the
calendar year.
In order to assist EPR in complying with the 100 person test and the
closely-held test, and for certain non-tax purposes, we have placed certain
restrictions on the transfer of our shares to prevent further concentration of
share ownership (See "Description of Securities"). To evidence compliance with
these requirements, we must maintain records which disclose the actual ownership
of our outstanding shares. In fulfilling our obligations to maintain records, we
must demand written statements each year from the record holders of designated
percentages of our shares disclosing the actual owners of the shares. A list of
those persons failing or refusing to comply with such demand must be maintained
as part of EPR's records. A shareholder failing or refusing to comply with EPR's
written demand must submit with his or her tax returns a similar statement
disclosing the actual ownership of shares and certain other information. EPR's
Declaration of Trust provides restrictions regarding the transfer of shares that
are intended to assist EPR in continuing to satisfy the share ownership
requirements, among other purposes.
Although EPR intends to satisfy the shareholder demand letter rules
described in the preceding paragraph, our failure to satisfy these requirements
will not result in our disqualification as a REIT but may result in the
imposition of IRS penalties.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to that share. In addition, the character of the
assets and gross income of a partnership shall retain the same character in the
hands of a partner qualifying as a REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests described below.
ASSET TESTS
At the close of each quarter of EPR's taxable year, EPR must satisfy two
tests relating to the nature of its assets. First, at least 75% of the value of
EPR's total assets must be represented by interests in real property, interests
in mortgages on real property, shares in other REIT's, cash, cash items and
government securities (as well as certain temporary investments in stock or debt
instruments purchased with the proceeds of new capital raised by EPR). Second,
although the remaining 25% of EPR's assets generally may be invested without
restriction, securities in this class may not exceed either: (i) except with
respect to the stock of a taxable REIT subsidiary, 5% of the value of EPR's
total assets as to any one non-government issuer; (ii) except with respect to
the stock of a taxable REIT subsidiary, 10% of the outstanding voting securities
of any one issuer or 10% of the total value of the securities of such issuer; or
(iii) with respect to the securities of its taxable REIT subsidiary, 20% of the
value of EPR's total assets. In addition, EPR may own 100% of "qualified REIT
subsidiaries," which are, in general, corporate subsidiaries 100% owned by a
REIT which do not elect to be treated as a taxable REIT subsidiary. All assets,
liabilities and items of income, deduction and credit of a qualified REIT
subsidiary will be treated as owned and realized directly by EPR (See "REIT
Modernization
17
Act" below). For purposes of the asset requirements, the securities of a
qualified REIT subsidiary will be ignored.
A taxable REIT subsidiary is any corporation the stock of which is owned in
whole or in part by a REIT and with respect to which both the REIT and the
subsidiary elect that it be taxed as a taxable REIT subsidiary.
GROSS INCOME TESTS
There are two separate percentage tests relating to the sources of EPR's
gross income which must be satisfied for each taxable year.
The 75% Test. At least 75% of EPR's gross income for each taxable year
must be "qualifying income." Qualifying income generally includes (i) "rents
from real property" (except as modified below), (ii) interest on obligations
collateralized by mortgages on, or interests in, real property, (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of EPR's trade or business ("dealer property"), (iv)
dividends or other distributions on shares in other REIT's, as well as gain from
the sale of those shares, (v) abatements and refunds of real property taxes,
(vi) income from the operation, and gain from the sale, of property acquired at
or in lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"), and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.
In addition, rents received from a tenant will not qualify as rents from
real property in satisfying the 75% test (or the 95% test described below) if
EPR, or an owner of 10% or more of EPR, directly or constructively owns 10% or
more of the tenant (a "related party tenant"). In addition, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued generally will not qualify as
rents from real property (or as interest income) for purposes of the 75% and 95%
gross income tests if it is based in whole or in part on the income or profits
of any person. Rent or interest will not be disqualified, however, solely by
reason of being based on a fixed percentage of receipts or sales. Finally, for
rents received to qualify as rents from real property, EPR generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom EPR derives no revenue.
(However, see "REIT Modernization Act" below). The "independent contractor"
requirement, however, does not apply to the extent the services provided by EPR
are "usually or customarily rendered" in connection with the rental of space for
occupancy only, and are not otherwise considered "rendered to the occupant." For
both the related party tenant rules and determining whether an entity qualifies
as an independent contractor, certain attribution rules of the Code apply,
pursuant to which shares of a REIT held by one entity are deemed held by
another.
Under prior law, if a REIT provided impermissible services to its tenants,
all of the rent from those tenants would have been disqualified from satisfying
the 75% test and 95% test (described below). Rents are not disqualified if a
REIT provides de minimis impermissible services. Services provided to tenants
are considered de minimis where income derived from the services equals 1% or
less of all income derived from the property (threshold determined on a
property-by-property basis). For purposes of this 1% threshold, the amount
treated as received for any service shall not be less than 150% of the direct
cost to EPR in furnishing or rendering the services. For purposes of this
analysis, services provided through an independent contractor or a taxable REIT
subsidiary will not be considered rendered by the REIT.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of EPR's gross income for each taxable year
must be derived from the above-described qualifying income, or from dividends,
interest or gains from the sale or disposition of stock or other securities that
are not dealer property. Dividends and interest on any obligation not
collateralized by an interest in real property are included for purposes of the
95% test, but not for purposes of the 75% test. Furthermore income earned on
interest rate swaps and caps entered into as liability hedges against variable
rate indebtedness qualify for the 95% test (but not the 75% test). Income earned
on liability hedges against all of a REIT's indebtedness, such
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as options, futures, and forward contracts, qualify for the 95% test (but not
the 75% test). In certain cases, Treasury Regulations treat a debt instrument
and a liability hedge as a synthetic debt instrument for all purposes of the
Code. If a liability hedge entered into by a REIT is subject to these rules,
income earned thereon will operate to reduce its interest expense, and,
therefore such income will not affect the REIT's compliance with either the 75%
or 95% tests.
Even if EPR fails to satisfy one or both of the 75% or 95% tests for any
taxable year, it may still qualify as a REIT for that year if it is entitled to
relief under certain provisions of the Code. These relief provisions will
generally be available if (i) EPR's failure to comply was due to reasonable
cause and not to willful neglect, (ii) EPR reports the nature and amount of each
item of its income included in the 75% and 95% tests on a schedule attached to
its tax return, and (iii) any incorrect information on this schedule is not due
to fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances EPR would be entitled to the benefit of these relief
provisions. If these relief provisions apply, EPR will, however, still be
subject to a special tax upon the greater of the amount by which it fails either
the 75% or 95% test for that year.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, we are required to make distributions (other
than capital gain distributions) to our shareholders each year in an amount at
least equal to (A) the sum of (i) 90% of EPR's REIT Taxable Income (computed
without regard to the dividends paid deduction and the REIT's net capital gain),
and (ii) 90% of the net income (after tax), if any, from foreclosure property,
minus (B) the sum of certain items of non-cash income. Such distributions must
be paid in the taxable year to which they relate, or in the following taxable
year if declared before we timely file our tax return for that year and if paid
on or before the first regular distribution payment after such declaration. To
the extent we do not distribute all of our net capital gain or distribute at
least 90%, but less than 100%, of our REIT Taxable Income, as adjusted, we will
be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. (However, a REIT can elect to
"pass through" any of its taxes paid on its undistributed net capital gain to
its shareholders on a pro rata basis.) Furthermore, if the REIT should fail to
distribute during each calendar year at least the sum of (i) 85% of its ordinary
income for that year, (ii) 90% of its net capital gain for that year, and (iii)
any undistributed taxable income from prior periods, the REIT would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. For these purposes, dividends declared to shareholders of
record in October, November or December of one calendar year and paid by January
31 of the following calendar year are deemed paid as of December 31 of the
initial calendar year.
We believe we have made and will make timely distributions sufficient to
satisfy the annual distribution requirements. It is possible that in the future
we may not have sufficient cash or other liquid assets to meet the 90%
distribution requirement, due to timing differences between the actual receipt
of income and actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing our REIT Taxable Income
on the other hand. Further, it is possible that from time to time, we may be
allocated a share of net capital gain attributable to any depreciated property
we sell that exceeds our allocable share of cash attributable to that sale. To
avoid any problem with the 90% distribution requirement, we will closely monitor
the relationship between our REIT Taxable Income and cash flow and, if
necessary, will borrow funds in order to satisfy the distribution requirement
(See "Risk Factors").
If we fail to meet the 90% distribution requirement as a result of an
adjustment to our tax return by the IRS, we may retroactively cure the failure
by paying a "deficiency dividend" (plus applicable penalties and interest)
within a specified period.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us, nor will they be required to be made. In such
event, to the extent of our current and accumulated earnings
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and profits, all distributions to shareholders will be taxable as ordinary
income, and, subject to certain limitations in the Code, corporate shareholders
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, we will also be disqualified from taxation
as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether we would be entitled
to such statutory relief.
REIT MODERNIZATION ACT
The REIT Modernization Act ("RMA") was passed by Congress and became
effective for tax years beginning after December 31, 2000. Among other things,
the RMA permits REITs to invest in taxable REIT subsidiaries ("TRS") subject to
certain limitations.
CHANGES TO THE ASSET TESTS
The RMA amended Section 856(c)(4) of the Code so that it now provides that,
except for real estate assets, cash and cash items (including receivables), and
government securities: (a) not more than 25% of the value of a REIT's total
assets can consist of securities, (b) not more than 20% of the value of a REIT's
total assets can be represented by securities of one or more TRSs, and (c)
except with respect to TRSs and the securities previously mentioned, (i) not
more than 5% of the value of the REIT's total assets can consist of securities
of any one issuer, and (ii) the REIT cannot hold securities having a value of
more than 10% of the total voting power or total value of the outstanding
securities of any one issuer. For purposes of the requirements of subparagraph
(ii), certain straight debt obligations may be disregarded.
IMPERMISSIBLE TENANT SERVICES INCOME
The RMA amended Section 856(d)(7)(C) of the Code so that it now provides
that income from services furnished or rendered, or management or operation
provided, through an independent contractor from whom the REIT does not derive
or receive any income or through a TRS does not constitute impermissible tenant
service income.
INCOME FROM TRS TREATED AS RENTS FROM REAL PROPERTY
The RMA amended Section 856(d) of the Code so that amounts paid to a REIT
by a TRS will not be excluded from rents from real property if at least 90% of
the leased space of the property is rented to persons other than the TRS of such
REIT and other than persons that are considered related under Section
856(d)(2)(B) of the Code and the amount paid is substantially comparable to
rents made by other tenants of the REIT's property for comparable space.
DETERMINATION OF RENT
The RMA made two amendments that affect the determination of rent. Section
856(d) of the Code was amended so that the allocation of rent between personal
and real property is now based on fair market value as opposed to adjusted
basis. In addition, Section 856(d)(2)(B) of the Code was amended so that it
excludes from the definition of rent amounts received from a party in which the
REIT owns 10% or more of the total value of its stock, rather than the total
number of shares or other beneficial interests.
DISTRIBUTION REQUIREMENT
The RMA amended Section 857(a) of the Code and reduced the amount of
distribution required by a REIT. Currently, a REIT must distribute to its
shareholders an amount equal to 90% of the REIT's taxable income before
deductions for dividends paid and excluding net capital gain.
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TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of shares who
(for U.S. federal income tax purposes) (i) is a citizen or resident of the
United States, (ii) is a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof (except, in the case of a partnership, the Treasury provides otherwise
by regulations), (iii) is an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) is a trust
whose administration is subject to the primary supervision of a United States
court and which has one or more United States persons who have the authority to
control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to that date that
elect to continue to be treated as United States persons shall also be
considered U.S. Shareholders.
As long as EPR qualifies as a REIT, distributions made out of our current
or accumulated earnings and profits (and not designated as capital gain
dividends) will constitute dividends taxable to our taxable U.S. Shareholders as
ordinary income. Such distributions will not be eligible for the dividends
received deduction otherwise available with respect to dividends received by
U.S. Shareholders that are corporations. Distributions made by EPR that are
properly designated as capital gain dividends will be taxable to U.S.
Shareholders as gains (to the extent they do not exceed our actual net capital
gain for the taxable year) from the sale or disposition of a capital asset.
Depending on the period of time EPR held the assets which produced the gains,
and on certain designations, if any, which may be made by EPR, such gains may be
taxable to noncorporate U.S. Shareholders at a 20% or 25% rate. U.S.
Shareholders that are corporations may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income. To the extent EPR makes
distributions (not designated as capital gain dividends) in excess of our
current and accumulated earnings and profits, such distributions will be treated
first as a tax-free return of capital to each U.S. Shareholder, reducing the
adjusted basis which such U.S. Shareholder has in his shares for tax purposes by
the amount of such distribution (but not below zero), with distributions in
excess of a U.S. Shareholder's adjusted basis in his shares taxable as capital
gain, provided the shares have been held as a capital asset (which, with respect
to a non-corporate U.S. Shareholder, will be taxable as long-term capital gain
if the shares have been held for more than eighteen months, mid-term capital
gain if the shares have been held for more than one year but not more than
eighteen months, or short-term capital gain if the shares have been held for one
year or less). Dividends declared by EPR in October, November or December of any
year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by EPR and received by the shareholder on
December 31st of that year; provided the dividend is actually paid by EPR on or
before January 31st of the following calendar year. Shareholders may not include
in their own income tax returns any net operating losses or capital losses of
EPR.
Distributions made by EPR and gain arising from the sale of exchange by a
U.S. Shareholder of shares will not be treated as passive activity income, and,
as a result, U.S. Shareholders generally will not be able to apply any "passive
losses" against such income or gain. Distributions made by EPR (to the extent
they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of shares (or distributions
treated as such), will not be treated as investment income under certain
circumstances.
Upon any sale or other disposition of shares, a U.S. Shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the shares for tax purposes. Such gain or loss will be capital
gain or loss if the shares have been held by the U.S. Shareholder as a capital
asset and, with respect to a non-corporate U.S. Shareholder, will be long-term
gain or loss if the shares have been held for more than one year at the time of
disposition. In general, any loss recognized by a U.S. Shareholder upon the sale
or other disposition of shares that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the
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extent of capital gain dividends received by such U.S. Shareholder from EPR
which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
EPR will report to our domestic shareholders and to the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if any
from those dividends. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 30% with respect to dividends paid
and redemption proceeds unless the shareholder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. Notwithstanding the foregoing, EPR
will institute backup withholding with respect to a shareholder when instructed
to do so by the IRS. A shareholder that does not provide EPR with his correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's federal income tax liability.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Revenue rulings, however, are
interpretive in nature and are subject to revocation or modification by the IRS.
Based upon the ruling and the analysis therein, distributions by EPR to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided the
tax exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, and that the shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity. In addition, REITs generally treat the beneficiaries of qualified
pension trusts as the beneficial owners of REIT shares owned by such pension
trusts for purposes of determining if more than 50% of the REIT's shares are
owned by five or fewer individuals. However, if a pension trust owns more than
10% of the REIT's shares, it can be subject to UBTI on all or a portion of REIT
dividends made to it, if the REIT is treated as a "pension-held REIT." A
pension-held REIT is any REIT if more than 25% of its shares are owned by one
pension trust, or one or more pension trusts each owns 10% of such shares, and
in the aggregate, such pension trusts own more than 50% of its shares. EPR does
not expect to be treated as a "pension-held REIT." Consequently, a pension trust
shareholder should not be subject to UBTI on dividends it receives from EPR.
However, because our common shares are publicly traded, no assurance can be
given in this regard.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing U.S. federal income taxation of the ownership and
disposition of shares by persons who or are not U.S. Shareholders ("Non-U.S.
Shareholders") are complex and no attempt is made in this Prospectus to provide
more than a summary of these rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of federal, state,
local and any foreign income tax laws with regard to an investment in EPR,
including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
EPR of "United States real property interests" ("USRPIs"), as defined in the
Code, and not designated by EPR as capital gain dividends will be treated as
dividends of ordinary income to the extent they are made out of current or
accumulated earnings and profits of EPR. Unless such distributions are
effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or
business (or, if an income tax treaty applies, are attributable to a U.S.
permanent establishment of the Non-U.S. Shareholder), the gross amount of the
distributions will ordinarily be subject to U.S. withholding tax at a 30% or
lower treaty rate, if applicable. In general, Non-U.S. Shareholders will not be
considered engaged in a U.S. trade or business (or, in the case of an income tax
treaty, as having a U.S. permanent establishment) solely by reason of their
ownership of shares. If income on shares is treated as effectively connected
with the Non-U.S. Shareholder's conduct of a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the Non-U.S.
22
Shareholder), the Non-U.S. Shareholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. Shareholders are taxed with respect
to such distributions (and may also be subject to the 30% branch profits tax in
the case of a shareholder that is a foreign corporation). EPR expects to
withhold U.S. income tax at the rate of 30% on the gross amount of any
distributions of ordinary income made to a Non-U.S. Shareholder unless (i) a
lower treaty rate applies and proper certification is provided, or (ii) the
Non-U.S. Shareholder files an IRS Form W-8 ECI with EPR claiming that the
distribution is effectively connected with the Non-U.S. Shareholder's conduct of
a U.S. trade or business (or, if an income tax treaty applies, is attributable
to a U.S. permanent establishment of the Non-U.S. Shareholder).
Pursuant to Treasury Regulations, dividends paid to an address in a country
outside the United States are generally presumed to be paid to a resident of
that country for purposes of ascertaining the withholding requirement discussed
above and the applicability of a tax treaty rate. Under certain income tax
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT. Under recently promulgated Temporary Treasury
Regulations, certain Non-U.S. Shareholders who seek to claim the benefit of an
applicable treaty rate will be required to satisfy certain residency
requirements. In addition, certain certification and disclosure requirements
must be satisfied under the effectively connected income and permanent
establishment exemptions discussed in the preceding paragraph.
Unless the shares constitute a USRPI, distributions in excess of current
and accumulated earnings and profits of EPR will not be taxable to a shareholder
to the extent such distributions do not exceed the adjusted basis of the
shareholder's shares but rather will reduce the adjusted basis of the shares. To
the extent such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares, as described below. If it cannot be determined at
the time a distribution is made whether or not the distribution will be in
excess of current and accumulated earnings and profits, the distributions will
be subject to withholding at the same rate as dividends. If, however, shares are
treated as a USRPI, then unless otherwise treated as a dividend for withholding
tax purposes as described below, any distributions in excess of current or
accumulated earnings and profits will generally be subject to 10% withholding
and, to the extent such distributions also exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they will also give rise to gain from the sale or
exchange of the shares, the tax treatment of which is described below.
Distributions that are designated by EPR at the time of distribution as
capital gain dividends (other than those arising from the disposition of a
USRPI) generally will not be subject to taxation, unless (i) investment in the
shares is effectively connected with the Non-U.S. Shareholder's United States
trade or business (or, if an income tax treaty applies, it is attributable to a
United States permanent establishment of the Non-U.S. Shareholder), in which
case the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain (except that a Shareholder that is a
foreign corporation may also be subject to the 30% branch profits tax), or (ii)
the Non-U.S. Shareholder is a non-resident alien individual whose is present in
the United States for 183 days or more during the taxable year and either has a
"tax home" in the United States or sold his shares under circumstances in which
the sale was attributable to a U.S. office, in which case the non-resident alien
individual will be subject to a 30% tax on the individuals capital gains.
For each year in which EPR qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EPR of USRPIs ("USRPI Capital
Gains"), such as properties beneficially owned by EPR, will be taxed to a
Non-U.S. Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed
to a Non-U.S. Shareholder as gain effectively connected with a U.S. trade or
business regardless or whether such dividends are designated as capital gain
dividends. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. Shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) on such distributions. Also, distributions of USRPI Capital Gains
may be subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption or rate reduction. EPR is required
by applicable Treasury Regulations to withhold a portion of any distribution
consisting of USRPI Capital Gains. This amount may be creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
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Gain recognized by a Non-U.S. Shareholder upon a sale of shares will
generally not be taxed under FIRPTA if the shares do not constitute a USRPI.
Shares will not be considered a USRPI if EPR is a "domestically controlled
REIT," or if the shares are part of a class that is regularly traded on an
established securities market and the holder owned less 5% of the class sold
during a specified testing period. A "domestically controlled REIT" is defined
generally as a real estate investment trust in which at all times during a
specified testing period less than 50% in value of the shares was held directly
or indirectly by foreign persons. EPR believes that it is a "domestically
controlled REIT," and therefore the sale of shares will not be subject to
taxation under FIRPTA. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. Shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the shares may be required
to withhold 10% of the purchase price and remit such amount to the IRS. However,
since our common shares are publicly traded, no assurance can be given in this
regard.
Gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in the shares is effectively connected with a U.S. trade or business
of the Non-U.S. Shareholder (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Shareholder), in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and has a "tax home" in the U.S., in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
U.S. Shareholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a disposition of shares are paid by or through a U.S.
office of a broker, the payment is subject to information reporting and backup
withholding unless the disposing Non-U.S. Shareholder certifies as to his name,
address and non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the U.S. through a non-U.S.
office of a non-U.S. broker. U.S. information reporting requirements (but not
backup withholding) will apply, however, to a payment of disposition proceeds
outside the U.S. if (i) the payment is made through an office outside the U.S.
of a broker that is either (a) a U.S. person, (b) a foreign person that derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the U.S. or (c) a "controlled foreign corporation" for U.S.
federal income tax purposes, and (ii) the broker fails to obtain documentary
evidence that the shareholder is a Non-U.S. Shareholder and that certain
conditions are met or that the Non-U.S. Shareholder otherwise is entitled to an
exemption.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "New Withholding Regulations") were recently
promulgated. In general, the New Withholding Regulations do not significantly
alter the substantive withholding and information reporting requirements
described above, but unify current certification procedures and forms and
clarify reliance standards. For example, the New Withholding Regulations adopt a
certification rule under which a Non-U.S. Shareholder who wishes to claim the
benefit of an applicable treaty rate with respect to dividends received from a
U.S. corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution designed by the REIT as capital gain
dividend. The New Withholding Regulations are generally effective for payments
made after December 31, 1999, subject to certain transition rules.
24
EXCEPT AS PROVIDED IN THIS PARAGRAPH, THE DISCUSSION SET FORTH ABOVE IN
"TAXATION OF FOREIGN SHAREHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING
REGULATIONS INTO ACCOUNT. PROSPECTIVE NON-U.S. SHAREHOLDERS ARE STRONGLY URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING
REGULATIONS.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective investors should recognize that the present federal income tax
treatment of an investment in EPR may be modified by legislative, judicial or
administrative action at any time, and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions or regulations and revised interpretations of established concepts
as well as statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of an investment in EPR.
STATE TAX CONSEQUENCES AND WITHHOLDING
EPR and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of EPR and its
shareholders may not conform to the federal income tax consequences discussed
above. Several states in which EPR may own properties treat REITs as ordinary
corporations. EPR does not believe, however, that shareholders will be required
to file state tax returns, other than in their respective states of residence,
as a result of the ownership of shares. However, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in EPR.
YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC
TAX CONSEQUENCES TO YOU OF THE OWNERSHIP AND SALE OF SHARES IN AN ENTITY
ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF SECURITIES
This summary of our securities is not meant to be complete and is qualified
in its entirety by reference to our Amended and Restated Declaration of Trust
and Amended Bylaws, copies of which have been filed with the SEC as Exhibits 4.2
and 4.4 to the Registration Statement and are incorporated by reference herein.
GENERAL
Our Declaration of Trust authorizes us to issue up to 50,000,000 common
shares and up to 5,000,000 preferred shares. As permitted by Maryland law, our
Declaration of Trust permits the Board of Trustees, without shareholder
approval, to amend the Declaration of Trust from time to time to increase or
decrease the aggregate number of shares or the number of shares of any class
that we have authority to issue. Under Maryland law, a shareholder is not
personally liable for the obligations of a REIT solely as a result of his or her
status as a shareholder.
As of April 18, 2002, a total of 17,101,759 common shares were outstanding
and no preferred shares were outstanding.
The transfer agent and registrar for our shares is UMB Bank, n.a.
COMMON SHARES
Holders of our common shares have the following rights:
- Dividends -- Common shareholders have the right to receive dividends when
and as declared by the Board of Trustees
25
- Voting Rights -- Common shareholders have the right to vote their shares.
Each common share has one vote on all matters submitted for shareholder
approval, including the election of trustees. We do not have cumulative
voting in the election of trustees, which means the holders of a majority
of our outstanding common shares can elect all of the trustees nominated
for election and the holders of the remaining common shares will not be
able to elect any trustees.
Liquidation Rights -- If we liquidate, holders of common shares are
entitled to receive all remaining assets available for distribution to common
shareholders after satisfaction of our liabilities and the preferential rights
of any preferred shares which may be issued in the future.
Other Features -- Our outstanding common shares are fully paid and
nonassessable. Common shareholders do not have any preemptive, conversion or
redemption rights.
PREFERRED SHARES
The relative dividend, voting, liquidation, conversion, redemption and
other rights and preferences on any preferred shares we may offer shall be
determined by the Board of Trustees. The Prospectus Supplement applicable to any
preferred shares will describe such things as:
- the serial designation and the number of shares constituting that series
- the dividend rates or the amount of dividends to be paid on the shares of
that series, whether dividends will be cumulative and, if so, from which
date or dates, the payment and record date or dates for dividends, and
the participating and other rights, if any, with respect to dividends
- the voting powers, full or limited, if any, of the shares of that series
- whether the shares of that series will be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, the
shares may be redeemed
- the amount or amounts payable upon the shares of that series and any
preferences applicable to the shares upon a voluntary or involuntary
liquidation, dissolution or winding up of the Company
- whether the shares of that series will be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
the shares, and if so entitled, the amount of that fund and the manner of
its application, including the price or prices at which the shares may be
redeemed or purchased through the application of the fund
- whether the shares of that series will be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of securities of EPR
and, if so convertible or exchangeable, the conversion price or prices,
the rate or rates of exchange, and the adjustments thereof, if any, at
which the conversion or exchange may be made, and any other terms and
conditions of the conversion or exchange
- the price or other consideration for which the shares of that series will
be issued
- whether the shares of that series which are redeemed or converted will
have the status of authorized but unissued undesignated preferred shares
(or series thereof) and whether the shares may be reissued as shares of
the same or any other class or series of shares
- such other powers, preferences, rights, qualifications, limitations and
restrictions thereof as the Board of Trustees may deem advisable
OWNERSHIP LIMIT
Our Declaration of Trust restricts the number of shares which may be owned
by shareholders. Generally, for EPR to qualify as a REIT under the Code, not
more than 50% in value of our outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities and constructive ownership among specified family members) at any time
during the last half of a taxable year. The shares must also be beneficially
owned by 100 or more persons during at least 335 days of a taxable year.
26
In order to maintain EPR's qualification as a REIT, the Declaration of Trust
contains restrictions on the acquisition of shares intended to ensure compliance
with these requirements.
Our Ownership Limit may also act to deter an unfriendly takeover of the
Company.
Our Declaration of Trust generally provides that any person (not just
individuals) holding more than 9.8% of our outstanding shares (the "Ownership
Limit") may be subject to forfeiture of the shares (including common shares and
preferred shares) owned in excess of the Ownership Limit ("Excess Shares"). The
Excess Shares may be transferred to a trust for the benefit of one or more
charitable beneficiaries. The trustee of that trust would have the right to vote
the voting Excess Shares, and dividends on the Excess Shares would be payable to
the trustee for the benefit of the charitable beneficiaries. Holders of Excess
Shares would be entitled to compensation for their Excess Shares, but that
compensation may be less than the price they paid for the Excess Shares. Persons
who hold Excess Shares or who intend to acquire Excess Shares must provide
written notice to EPR.
WARRANTS
The terms of any warrants we may offer shall be established by the Board of
Trustees and will be described in a Prospectus Supplement, including such
matters as:
- the title of the warrants
- the offering price for the warrants
- the aggregate number of the warrants
- the designation and terms of the securities purchasable upon exercise of
the warrants
- if applicable, the designation and terms of the securities that the
warrants are issued with and the number of warrants issued with each
security
- if applicable, the date after which the warrants and any securities
issued with them will be separately transferable
- the number or amount of securities that may be purchased upon exercise of
a warrant and the price at which the securities may be purchased upon
exercise
- the dates on which the right to exercise the warrants will commence and
expire
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time
- whether the warrants represented by the warrant certificates or
securities that may be issued upon exercise of the warrants will be
issued in registered or bearer form
- information relating to book-entry procedures
- anti-dilution provisions of the warrants, if any
- redemption, repurchase or analogous provisions, if any, applicable to the
warrants
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
DEBT SECURITIES
The terms of any debt securities we may offer shall be established by the
Board of Trustees and will be described in a Prospectus Supplement, including
such matters as:
- the title of the debt securities
- the principal amount of the debt securities being offered and any limit
upon the aggregate principal amount
27
- the date or dates on which the principal will be payable
- the price or prices at which the debt securities will be issued
- the fixed or variable rate or rates of the debt securities, or manner of
calculation, if any, at which the debt securities of the series will bear
interest, the date or dates from which any such interest will accrue and
on which such interest will be payable, and, with respect to securities
of the series in registered form, the record date for the interest
payable on any interest payment date
- the date or dates on which, and the place or places where, the principal
of the debt securities will be payable
- any redemption, repurchase, sinking fund or analogous provisions
- if other than the principal amount thereof, the portion of the principal
amount that will be payable upon declaration of acceleration of the
maturity thereof
- whether we will issue debt securities in registered or bearer form, or
both
- the terms upon which a holder may exchange bearer securities for
securities in registered form and vice versa
- whether we will issue debt securities in the form of one or more "global
securities" through the book-entry system of The Depository Trust
Company, New York, New York
- whether and under what circumstances we will pay additional amounts on
the debt securities held by a person who is not a U.S. person in respect
of taxes or similar charges withheld or deducted and, if so, whether we
will have the option to redeem those securities rather than pay those
additional amounts
- the denominations of the debt securities, if other than $1,000 or an
integral multiple of $1,000
- whether the debt securities will be convertible into or exchangeable for
any other securities and the terms and conditions upon which a conversion
or exchange may occur, including the initial conversion or exchange price
or rate, the conversion or exchange period and any other additional
provisions
PLAN OF DISTRIBUTION
We may sell common shares, preferred shares, warrants and debt securities:
- through underwriters or dealers
- through agents
- directly to one or more purchasers
- directly to shareholders
We may effect the distribution of common shares, preferred shares, warrants
and debt securities from time to time in one or more transactions either:
- at a fixed price or prices which may be changed
- at market prices prevailing at the time of sale
- at prices relating to those market prices
- at negotiated prices
For each offering of common shares, preferred shares, warrants or debt
securities, the Prospectus Supplement will describe the plan of distribution.
If we use underwriters in the sale, they will buy the securities for their
own account. The underwriters may then resell the securities in one or more
transactions at a fixed public offering price, at any market price in effect at
the time of sale or at a discount from any such market price. The obligations of
the underwriters to
28
purchase the securities will be subject to certain conditions. The underwriters
will be obligated to purchase all the securities offered if they purchase any
securities. Any public offering price and any discounts or concessions allowed
or re-allowed or paid to dealers may be changed from time to time.
If we use dealers in the sale, we will sell securities to those dealers as
principals. The dealers may then resell the securities to the public at any
market price or other prices to be determined by the dealers at the time of
resale. If we use agents in the sale, they will use their reasonable best
efforts to solicit purchasers for the period of their appointment. If we sell
directly, no underwriters or agents would be involved. We are not making an
offer of securities in any state that does not permit such an offer.
Underwriters, dealers and agents that participate in the distribution of
securities may be deemed to be underwriters as defined in the Securities Act.
Any discounts, commissions or profit they receive when they resell the
securities may be treated as underwriting discounts and commissions under the
Securities Act. We may have agreements with underwriters, dealers and agents to
indemnify them against certain civil liabilities, including certain liabilities
under the Securities Act, or to contribute to payments they may be required to
make.
We may authorize underwriters, dealers or agents to solicit offers from
institutions in which the institution contractually agrees to purchase the
securities from us on a future date at a specified price. This type of agreement
may be made only with institutions that we specifically approve. These
institutions could include banks, insurance companies, pension funds, investment
companies and educational and charitable institutions. The underwriters, dealers
or agents will not be responsible for the validity or performance of these
agreements.
To facilitate an offering of the securities, certain persons participating
in the offering may engage in transactions that stabilize or maintain the price
of the securities. This may include over-allotments or short sales of the
securities, which involve the sale by persons participating in the offering of
more securities than EPR has sold to them. In those circumstances, these persons
would cover the over-allotments or short positions by purchasing securities in
the open market or by exercising an over-allotment option which may be granted
to them by EPR. In addition, these persons may stabilize or maintain the price
of the securities by bidding for or purchasing securities in the open market or
by imposing penalty bids, under which selling concessions allowed to dealers
participating in the offering may be reclaimed if the securities they sell are
repurchased in stabilization transactions. The effect of these transactions may
be to stabilize or maintain the market price of the securities at a level above
that which might otherwise prevail in the open market. These transactions, if
commenced, may be discontinued at any time.
Underwriters, dealers or agents may engage in transactions with us and may
perform services for us in the ordinary course of business.
LEGAL MATTERS
Kutak Rock LLP will issue an opinion about the legality of the securities
and EPR's qualification and taxation as a REIT under the Code. In addition, the
description of EPR's taxation and qualification as a REIT under the caption
"Federal Income Tax Consequences" will be based upon the opinion of Kutak Rock
LLP. Underwriters, dealers or agents who we identify in a Prospectus Supplement
may have their counsel give an opinion on certain legal matters relating to the
securities or the offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2001, as set forth in their report which is
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in auditing and accounting.
On April 5, 2002, we engaged KPMG LLP to audit our financial statements for
the year ending December 31, 2002.
29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with this offering are set forth in
the following table:
SEC Registration Fee........................................ $ 11,500*
Accounting Fees and Expenses................................ 60,000
Legal Fees and Expenses..................................... 100,000
Printing Expenses........................................... 30,000
Miscellaneous............................................... 50,000
Total....................................................... $251,500
---------------
* of which $8340 has been previously paid under Registration Statement No.
333-78727
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Maryland law permits a Maryland real estate investment trust to include in
its declaration of trust a provision limiting the liability of its officers and
trustees to the trust and its shareholders for money damages except for
liability resulting from: (a) actual receipt of an improper benefit or profit in
money, property or services; or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. EPR's Declaration
of Trust contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
EPR's officers and trustees are and will be indemnified under EPR's
Declaration of Trust against certain liabilities. EPR's Declaration of Trust
provides that EPR will, to the maximum extent permitted by Maryland law in
effect from time to time, indemnify: (a) any individual who is a present or
former trustee or officer of EPR; or (b) any individual who, while a trustee or
officer of EPR and at the request of EPR, serves or has served as a director,
officer, shareholder, partner, trustee, employee or agent of any real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprises against any claim or liability, together
with reasonable expenses actually incurred in advance of a final disposition of
a legal proceeding, to which such person may become subject or which such person
may incur by reason of his or her status as such. EPR has the power, with the
approval of EPR's Board of Trustees, to provide such indemnification and
advancement of expenses to a person who served a predecessor of EPR in any of
the capacities described in (a) or (b) above and to any employee or agent of EPR
or its predecessors.
Maryland law permits a Maryland real estate investment trust to indemnify
and advance expenses to its trustees, officers, employees and agents to the same
extent as permitted by the Maryland General Corporation Law ("MGCL") for
directors, officers, employees and agents of a Maryland corporation. The MGCL
requires a corporation (unless its charter provides otherwise, which EPR's
Declaration of Trust does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made a party by reason of his or her service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that: (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty; (b) the director or officer actually received an
improper personal benefit in money, property or services; or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer
II-1
upon the corporation's receipt of a written affirmation by the director or
officer of his or her good faith belief that he or she has met the standard of
conduct necessary for indemnification by the corporation and a written
undertaking by him or her to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met.
EPR has entered into indemnity agreements with certain of its officers and
trustees which provide for reimbursement of all expenses and liabilities of such
persons arising out of any lawsuit or claim against them arising from their
service in that capacity, except for liabilities and expenses: (a) the payment
of which is judicially determined to be unlawful; (b) relating to claims under
Section 16(b) of the Exchange Act; or (c) relating to judicially determined
criminal violations. EPR has obtained director's and officer's liability
insurance for the purpose of funding any such indemnification.
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 Form of Underwriting Agreement (to be filed by amendment or
by a Current Report on Form 8-K incorporated by reference
herein)
4.1 Amended and Restated Declaration of Trust of the Company
(incorporated by reference to the Company's Current Report
on Form 8-K filed on June 7, 1999)
4.2 Amended Bylaws of the Company (incorporated by reference to
the Company's Current Report on Form 8-K filed on June 7,
1999)
4.3 Form of share certificate for common shares of beneficial
interest of the Company (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
5.1 Opinion of Kutak Rock LLP (incorporated by reference to the
Company's Registration Statement on Form S-3 filed on April
30, 2002)
8.1 Tax Opinion of Kutak Rock LLP
10.1 Form of Agreement of Sale and Purchase between the Company
and American Multi-Cinema, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.2 Form of Option Agreement between the Company and American
Multi-Cinema, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.3 Form of Option Agreement between the Company and Clip
Funding, Limited Partnership (incorporated by reference to
the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.4 Form of AMCE Right to Purchase Agreement between the Company
and AMC Entertainment Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.5 Form of Lease entered into between the Company and American
Multi-Cinema, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.6 Form of Guaranty of Lease entered into between the Company
and AMC Entertainment, Inc. (incorporated by reference to
the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.7 Credit Agreement dated March 2, 1998 among the Company, EPT
DownREIT, Inc., The Bank of New York and other lenders
(incorporated by reference to the Company's Registration
Statement on Form S-11, as amended, file No. 333-35281)
10.8 Form of Indemnification Agreement entered into between the
Company and each of its trustees and officers (incorporated
by reference to the Company's Registration Statement on Form
S-11, as amended, file No. 333-35281)
10.9 1997 Share Incentive Plan (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
II-2
EXHIBIT NO. DESCRIPTION
----------- -----------
10.10 Deferred Compensation Plan for Non-Employee Trustees
(incorporated by reference to the Company's Registration
Statement on Form S-11, as amended, file No. 333-35281)
10.11 Annual Incentive Program (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.12 Employment Agreement with David M. Brain.
10.13 Loan Agreement, dated as of June 29, 1998 between EPT
DownREIT, II, Inc., as Borrower and Archon Financial, LP as
Lender (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
10.14 Mortgage and Security Agreement, Deed of Trust and Security
Agreement and Loan Agreement for secured loans aggregating
$20.2 million to 3 Theatres, Inc. a wholly-owned subsidiary
of EPT DownREIT, Inc. (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000)
10.15 Fourth Amendment to Credit Agreement dated as of March 2,
1998 among Entertainment Properties Trust as Borrower and
the Lenders party thereto (incorporated by reference to the
Company's Current Report on Form 8-K dated September 28,
2000)
10.16 Mezzanine Loan Agreement dated February 14, 2001, between
Megaplex Holdings, Inc. and iStar Funding, LLC (incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000)
10.17 Loan Agreement dated February 14, 2001, between Megaplex
Nine, Inc. and Bear Stearns Funding, Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000)
10.18 Amended and Restated Credit Agreement dated May 18, 2001,
between Entertainment Properties Trust and iStar Financial,
Inc. (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001)
10.19 Second Amended and Restated Credit Agreement dated as of
October 31, 2001 between Entertainment Properties Trust and
SFT II, Inc. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001)
10.20 Master Credit Agreement dated May 3, 2002 among the Company,
30 West Pershing, LLC and Fleet National Bank for a secured
revolving credit facility in the maximum principal amount of
$50,000,000
23.1 Consent of Ernst & Young LLP
23.2 Consent of Kutak Rock LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (incorporated in the signature page to the
Registration Statement on Form S-3 filed on April 30, 2002)
---------------
ITEM 17. UNDERTAKINGS
EPR undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that subparagraphs (i) and (ii) do not
apply if the information
II-3
required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by EPR pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Act
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Act, each
filing of EPR's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) For purposes of determining any liability under the Act, any
information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Act, each
such post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement related to the securities offered
therein, and the offering of such securities at that time shall be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers and controlling persons of EPR pursuant to the
provisions described under Item 15 B Indemnification of Trustees and Officers
above, or otherwise, EPR has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a claim for
indemnification against such liabilities (other than payment by EPR of expenses
incurred or paid by a trustee, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered, EPR
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the registration statement on Form S-3 to be signed on its behalf by
the undersigned, thereunto duly authorized, in Kansas City, Missouri on May 17,
2002.
ENTERTAINMENT PROPERTIES TRUST
By: /s/ DAVID M. BRAIN
------------------------------------
David M. Brain
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PETER C. BROWN* Chairman May 17, 2002
------------------------------------------------
Peter C. Brown
/s/ DAVID M. BRAIN President, Chief Executive Officer May 17, 2002
------------------------------------------------ and Trustee
David M. Brain
/s/ ROBERT J. DRUTEN* Trustee May 17, 2002
------------------------------------------------
Robert J. Druten
/s/ SCOTT H. WARD* Trustee May 17, 2002
------------------------------------------------
Scott H. Ward
/s/ DANLEY K. SHELDON* Trustee May 17, 2002
------------------------------------------------
Danley K. Sheldon
/s/ FRED L. KENNON Vice President, Treasurer May 17, 2002
------------------------------------------------ and Chief Financial Officer
Fred L. Kennon
*By: /s/ DAVID M. BRAIN May 17, 2002
------------------------------------------
David M. Brain, Attorney-in-Fact
II-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
1.1 Form of Underwriting Agreement (to be filed by amendment or
by a Current Report on Form 8-K incorporated by reference
herein)
4.1 Amended and Restated Declaration of Trust of the Company
(incorporated by reference to the Company's Current Report
on Form 8-K filed on June 7, 1999)
4.2 Amended Bylaws of the Company (incorporated by reference to
the Company's Current Report on Form 8-K filed on June 7,
1999)
4.3 Form of share certificate for common shares of beneficial
interest of the Company (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
5.1 Opinion of Kutak Rock LLP (incorporated by reference to the
Company's Registration Statement on Form S-3 filed on April
30, 2002)
8.1 Tax Opinion of Kutak Rock LLP
10.1 Form of Agreement of Sale and Purchase between the Company
and American Multi-Cinema, Inc. (incorporated by reference
to the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.2 Form of Option Agreement between the Company and American
Multi-Cinema, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.3 Form of Option Agreement between the Company and Clip
Funding, Limited Partnership (incorporated by reference to
the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.4 Form of AMCE Right to Purchase Agreement between the Company
and AMC Entertainment Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.5 Form of Lease entered into between the Company and American
Multi-Cinema, Inc. (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.6 Form of Guaranty of Lease entered into between the Company
and AMC Entertainment, Inc. (incorporated by reference to
the Company's Registration Statement on Form S-11, as
amended, file No. 333-35281)
10.7 Credit Agreement dated March 2, 1998 among the Company, EPT
DownREIT, Inc., The Bank of New York and other lenders
(incorporated by reference to the Company's Registration
Statement on Form S-11, as amended, file No. 333-35281)
10.8 Form of Indemnification Agreement entered into between the
Company and each of its trustees and officers (incorporated
by reference to the Company's Registration Statement on Form
S-11, as amended, file No. 333-35281)
10.9 1997 Share Incentive Plan (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.10 Deferred Compensation Plan for Non-Employee Trustees
(incorporated by reference to the Company's Registration
Statement on Form S-11, as amended, file No. 333-35281)
10.11 Annual Incentive Program (incorporated by reference to the
Company's Registration Statement on Form S-11, as amended,
file No. 333-35281)
10.12 Employment Agreement with David M. Brain.
10.13 Loan Agreement, dated as of June 29, 1998 between EPT
DownREIT, II, Inc., as Borrower and Archon Financial, LP as
Lender (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)
10.14 Mortgage and Security Agreement, Deed of Trust and Security
Agreement and Loan Agreement for secured loans aggregating
$20.2 million to 3 Theatres, Inc. a wholly-owned subsidiary
of EPT DownREIT, Inc. (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000)
EXHIBIT NO. DESCRIPTION
----------- -----------
10.15 Fourth Amendment to Credit Agreement dated as of March 2,
1998 among Entertainment Properties Trust as Borrower and
the Lenders party thereto (incorporated by reference to the
Company's Current Report on Form 8-K dated September 28,
2000)
10.16 Mezzanine Loan Agreement dated February 14, 2001, between
Megaplex Holdings, Inc. and iStar Funding, LLC (incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000)
10.17 Loan Agreement dated February 14, 2001, between Megaplex
Nine, Inc. and Bear Stearns Funding, Inc. (incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000)
10.18 Amended and Restated Credit Agreement dated May 18, 2001,
between Entertainment Properties Trust and iStar Financial,
Inc. (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001)
10.19 Second Amended and Restated Credit Agreement dated as of
October 31, 2001 between Entertainment Properties Trust and
SFT II, Inc. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
2001)
10.20 Master Credit Agreement dated May 3, 2002 among the Company,
30 West Pershing, LLC and Fleet National Bank for a secured
revolving credit facility in the maximum principal amount of
$50,000,000
23.1 Consent of Ernst & Young LLP
23.2 Consent of Kutak Rock LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (incorporated in the signature page to the
Registration Statement on Form S-3 filed on April 30, 2002)