<PAGE> 1
Filed pursuant to rule 424(B)(2)
Registration No. 333-78727
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 2, 1999)
1,200,000 SHARES
ENTERTAINMENT PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
[CIBC graphic]
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Entertainment Properties Trust is a self-administered real estate investment
trust that invests in entertainment-related properties. As of March 31, 1999,
our real estate portfolio comprised 21 megaplex theatre properties located in
eleven states and one entertainment-themed retail center development property
located in Westminster, Colorado. We also own 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, we impose certain restrictions on ownership of our common
shares. You should read the information under the heading "Description of Common
Shares" and "Federal Income Tax Consequences" in the accompanying Prospectus for
a description of these restrictions.
We are offering and selling 1,200,000 common shares of beneficial interest with
this Prospectus Supplement. Our common shares are listed for trading on the New
York Stock Exchange under the symbol "EPR." The last reported sale price of our
common shares on the New York Stock Exchange on June 3, 1999 was $18.625 per
share. See "Price Range of Common Shares and Dividends."
The underwriter will purchase the common shares from Entertainment Properties
Trust at a price of $17.58 per share, resulting in $21,096,000 aggregate net
proceeds (before expenses) to Entertainment Properties Trust.
The underwriter may offer the common shares in transactions in the
over-the-counter market or through negotiated transactions at market prices or
at negotiated prices. The underwriter may not offer the common shares to the
public through the facilities of a national securities exchange or to or through
a market maker otherwise than on an exchange. See "Underwriting."
INVESTING IN THE COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 3 OF THE ATTACHED PROSPECTUS.
This offering is being underwritten by CIBC World Markets Corp. on a firm
commitment basis, which means that it must purchase all of the common shares if
any are purchased. The underwriter's purchase of the shares is subject to a
number of conditions. We have granted an over-allotment option to the
underwriter. Under this option, the underwriter may elect to purchase a maximum
of 180,000 additional common shares from us within 30 days following the date of
this Prospectus Supplement to cover over-allotments. Delivery of the common
shares is expected in New York, New York on or about June 9, 1999.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[CIBC World Markets logo]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 3, 1999.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents by Reference............. S-3
Forward-Looking Statements.................................. S-3
The Company................................................. S-4
Price Range of Common Shares and Dividends.................. S-5
Use of Proceeds............................................. S-5
Selected Financial Data..................................... S-6
Underwriting................................................ S-7
Legal Matters............................................... S-8
Experts..................................................... S-8
PROSPECTUS
About This Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation of Certain Documents by Reference............. 1
Forward-Looking Statements.................................. 2
Risk Factors................................................ 3
Business and Properties..................................... 7
Use of Proceeds............................................. 12
Federal Income Tax Consequences............................. 12
Description of Common Shares................................ 21
Plan of Distribution........................................ 23
Legal Matters............................................... 24
Experts..................................................... 24
</TABLE>
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For purpose of this Prospectus Supplement, we sometimes refer to ourselves as
"EPR" or the "Company" and our status as a real estate investment trust as a
"REIT."
Our executive offices are located at 1200 Main Street, Suite 3250, Kansas City,
Missouri 64105 and our telephone number is (816)472-1700. Our web site is
located at www.eprkc.com.
S-2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS 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 Supplement. Any statement contained in a document that is
incorporated by reference in this Prospectus Supplement is automatically updated
and superseded if information contained in this Prospectus Supplement, or
information we later file with the SEC, modifies or replaces that information.
We have filed the documents listed below under the Exchange Act (File No.
1-13561) and these documents are incorporated by reference in this Prospectus
Supplement:
1. Entertainment Property Trust's Annual Report on Form 10-K for the year
ended December 31, 1998.
2. Entertainment Property Trust's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
3. Entertainment Property Trust's Proxy Statement dated March 30, 1999.
4. All documents that we may file under Section 13(a), 14 or 15(d) of the
Exchange Act after the date of this Prospectus Supplement and prior to
the termination of the offering of the common shares are covered by this
Prospectus Supplement.
To obtain a free copy of any of the documents incorporated by reference in this
Prospectus Supplement (other than Exhibits, unless they are specifically
incorporated by reference in the documents), please contact us at Investor
Relations Department, Entertainment Properties Trust, 1200 Main Street, Suite
3250, Kansas City, Missouri, 64105, telephone number (816) 472-1700, facsimile
(816) 472-5794, e-mail [email protected].
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 Supplement, you should rely on the statements made in the most recent
document.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR CONTAINED
IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO
PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER
TO SELL NOR ARE WE SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION
IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE ON THE FRONT OF THOSE DOCUMENTS.
FORWARD-LOOKING STATEMENTS
With the exception of historical information, this Prospectus Supplement and our
reports filed under the Exchange Act and incorporated by reference in this
Prospectus Supplement contain forward-looking statements, such as those
pertaining to the acquisition 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. Our actual financial condition, results of operations or
business may vary materially from those contemplated by these forward-looking
statements and involve various uncertainties, including but not limited to the
factors described in the attached Prospectus under "Risk Factors." We caution
you not to place undue reliance on any forward-looking statements, which reflect
our analysis only.
S-3
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THE COMPANY
We are a Maryland-incorporated REIT formed to capitalize on opportunities
created by the development of destination entertainment and
entertainment-related properties, including megaplex theatre complexes and
entertainment-themed retail centers ("ETRC's"). We are the first publicly-traded
REIT formed exclusively to invest in entertainment-related properties.
We believe that we have operated, and we intend to continue to operate, in such
a manner as to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code").
Our growth strategy includes:
- Purchasing additional properties pursuant to existing agreements between
EPR and leading theatre operators.
- Developing or acquiring additional megaplex theatre properties and
leasing those properties to qualified theatre exhibitors.
- Developing or acquiring, and leasing to qualified operators or master
tenants, ETRC's and single-tenant, out-of-home, location-based
entertainment and entertainment-related properties.
Our operating strategy includes:
- Purchasing single-tenant properties supported by long-term leases or
multi-tenant properties that are substantially leased to minimize the
risks inherent in initial leasing.
- Structuring leases, where possible, on a triple-net or similar basis
under which the tenants bear substantially all operational expenses
connected with the properties.
- Structuring leases for contractual increases in rent and/or percentage
rent based upon a percentage of a tenant's gross sales over a
pre-determined level.
- Developing and maintaining long-term working relationships with theatre,
restaurant, retail and other entertainment-related business operators
and developers.
- Diversifying our asset base by property type and tenant.
Our capitalization strategy includes:
- Employing moderate leverage, including our Bank Credit Facility (as
described herein), to fund additional acquisitions.
- Pursuing joint venture opportunities and other arrangements to fund
additional property acquisitions.
- Maintaining a debt-to-total capitalization ratio consistent with prudent
management and market expectations.
- Paying regular distributions and periodically increasing distributions
to shareholders to the extent expected increases in FFO (as defined
herein) and cash available for distribution (net earnings plus
depreciation and amortization minus capital expenditures and principal
payments on indebtedness) are realized.
S-4
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PRICE RANGE OF COMMON SHARES AND DIVIDENDS
The following table shows the high and low sale prices for our common shares for
the periods indicated as reported by the New York Stock Exchange ("NYSE") and
the dividends per common share paid by us with respect to each such period.
<TABLE>
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HIGH LOW DIVIDENDS
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<S> <C> <C> <C>
1997
Fourth Quarter(1)....................................... $19.75 $19.00 $0.18
1998
First Quarter........................................... $20.00 $19.19 $0.40
Second Quarter.......................................... $19.81 $18.25 $0.40
Third Quarter........................................... $18.88 $14.81 $0.40
Fourth Quarter.......................................... $18.94 $16.00 $0.40
1999
First Quarter........................................... $17.44 $15.63 $0.42
Second Quarter (through June 4, 1999)................... $19.94 $16.25 -- (2)
</TABLE>
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(1) For the period from November 18, 1997 to December 31, 1997.
(2) Not yet declared.
On June 3, 1999, the last reported sale price of our common shares on the NYSE
was $18.625 per share. Generally, we expect to pay dividends to our common
shareholders on or about the 15th day of each January, April, July and October.
Dividends are paid at the discretion of our Board of Trustees and will depend on
our FFO, our financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code, and such other factors as
our Board of Trustees deems relevant. Our Bank Credit Facility limits the
payment of dividends to 90% of FFO; however, the Bank Credit Facility permits us
at all times to pay such dividends as are required to maintain our status as a
REIT. See "Risk Factors -- Debt Restrictions May Affect Operations and
Negatively Affect Our Ability to Repay Indebtedness at Maturity" in the
accompanying Prospectus. In 1998, the annual dividend represented approximately
84.7% of FFO. The dividend paid in the first quarter of 1999 represented
approximately 75.5% of FFO.
We have implemented a dividend reinvestment and direct share purchase plan under
which our shareholders may elect to automatically reinvest their dividends in
our common shares. To fulfill our obligations under this dividend reinvestment
and direct share purchase plan, we may, from time to time, issue additional
common shares or repurchase shares in the open market.
Distributions by us to the extent of our current earnings and profits for
federal income tax purposes are taxable to shareholders as ordinary dividend
income. Distributions in excess of our earnings and profits generally are
treated as a non-taxable return of capital to the extent of a shareholder's
basis in the common shares. A return of capital distribution has the effect of
deferring taxation until a shareholder's sale of the common shares.
USE OF PROCEEDS
The net proceeds to us from the sale of the common shares are expected to be
approximately $21.1 million (approximately $24.3 million if the Underwriter's
over-allotment option is exercised in full). We intend to use those proceeds
either to acquire properties which meet our investment objectives or to pay down
our Bank Credit Facility which can then be drawn upon to acquire properties. The
Bank Credit Facility has an interest rate of the London Inter-Bank Offered Rate
("LIBOR") plus 1.75% (currently 6.95%) and matures in March 2001. As of March
31, 1999, the principal balance of the Bank Credit Facility was approximately
$106 million.
S-5
<PAGE> 6
Pending application of net proceeds, we will invest net proceeds in
interest-bearing accounts and short-term interest-bearing securities which are
consistent with our qualification as a REIT.
Although we have evaluated a number of properties which meet our investment
objectives, we have not signed a definitive agreement to acquire any specific
properties with the proceeds of this offering. Any future acquisition would be
subject to a number of conditions, including a review of the property design,
construction, location and negotiation and documentation of acquisition and
lease terms.
SELECTED FINANCIAL DATA
This table includes selected historical financial data of EPR. You should read
carefully the consolidated financial statements and schedule included in EPR's
annual report on Form 10-K for the year ended December 31, 1998 and the
unaudited consolidated financial statements included in EPR's quarterly report
on Form 10-Q for the three months ended March 31, 1999. The selected data in
this Section are not intended to replace the consolidated financial statements
and schedule included in our annual report on Form 10-K for the year ended
December 31, 1998 or the unaudited financial statements included in our
quarterly report on Form 10-Q for the three months ended March 31, 1999, each of
which is incorporated by reference herein. Figures are expressed in thousands
except per share data.
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
ENDED YEAR ENDED AUGUST 29 TO
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
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(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Rental revenue............................... $ 11,497 $ 35,031 $ 1,887
Net income................................... 5,438 19,238 1,442
Net income per common share:
Basic...................................... 0.39 1.39 0.10
Diluted.................................... 0.39 1.39 0.10
Cash dividends declared per basic common
share...................................... 0.42 1.60 0.18
Funds from operations(1)..................... 7,686 26,213 2,101
Funds from operations per common share
Basic...................................... 0.56 1.90 0.15
Diluted.................................... 0.55 1.89 0.15
Weighted average number of common shares
outstanding
Basic...................................... 13,814 13,802 13,800
Diluted.................................... 13,892 13,880 13,860
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
--------- --------- ---------
BALANCE SHEET DATA:
Total assets................................. $ 472,810 $ 464,371 $ 259,488
Long term debt............................... 213,739 206,037 --
Shareholders' equity......................... 248,238 248,562 251,226
</TABLE>
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(1) We compute funds from operations ("FFO") in accordance with standards
established by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT") in the White Paper. The White Paper
defines FFO as net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
and excluding amounts for extraordinary and non-recurring items, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.
S-6
<PAGE> 7
UNDERWRITING
The Company and CIBC World Markets Corp., as the underwriter for the offering of
common shares, have entered into an underwriting agreement with respect to the
shares being offered by this Prospectus Supplement. Subject to conditions, the
Company has agreed to sell to the underwriter, and the underwriter has agreed to
purchase from the Company, the 1,200,000 common shares offered hereby.
Under the terms and conditions of the underwriting agreement, the underwriter is
committed to take and pay for all of the common shares offered hereby, if any
are taken.
The underwriter proposes to offer the common shares from time to time for sale
in one or more transactions in the over-the-counter market, through negotiated
transactions or otherwise at market prices prevailing at the time of the sale,
at prices related to prevailing market prices or at negotiated prices, subject
to receipt and acceptance by it and subject to its right to reject any order in
whole or in part. The underwriter may not offer the common shares to the public
through the facilities of a national securities exchange or to or through a
market maker otherwise than on an exchange. In connection with the sale of the
common shares offered hereby, the underwriter may be deemed to have received
compensation in the form of underwriting discounts. The underwriter may effect
such transactions by selling common shares offered hereby to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriter and/or purchasers of common shares for whom
they may act as agents or to whom they may sell as principal.
The Company has granted to the underwriter an option to purchase up to an
additional 180,000 common shares at the purchase price set forth on the cover
page of this Prospectus Supplement, solely to cover over-allotments, if any. The
option may be exercised at any time within 30 days after the date of the
underwriting agreement. To the extent that the option is exercised, the
underwriter will be committed, subject to certain conditions, to purchase the
additional common shares.
The Company has agreed with the underwriter not to dispose of any of its common
shares or securities convertible into or exchangeable for common shares during
the period from the date of this Prospectus Supplement continuing through the
date 45 days after the date of this Prospectus Supplement, except with the prior
written consent of the underwriter. The foregoing does not apply to (A) the
issuance of common shares in exchange for properties to be acquired by the
Company from time to time, (B) the issuance of common shares pursuant to the
exercise of outstanding employee and trustee options or the grant or issuance of
options under any existing common share option plans or (C) the issuance of
common shares pursuant to any dividend reinvestment and share purchase plan.
In connection with the offering, the underwriter may purchase and sell common
shares in the open market. These transactions may include short sales and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriter of a greater number of shares than it is required to
purchase in the offering.
These activities by the underwriter may maintain or otherwise affect the market
price of the common shares. As a result, the price of the common shares may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriter at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
The Company estimates that its total expenses for the offering will be
approximately $100,000.
The Company has agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933.
The underwriter has provided from time to time, and may provide in the future,
investment banking and other financial services to the Company. In the ordinary
course of business, the underwriter may actively trade securities of the Company
for its own account or for accounts of customers and, accordingly, it may at any
time hold long or short positions in those securities.
S-7
<PAGE> 8
LEGAL MATTERS
Armstrong Teasdale LLP, Kansas City, Missouri, will issue an opinion about the
legality of the common shares and EPR's qualification and taxation as a REIT
under the Code. In addition, the description of EPR's taxation and qualification
as a REIT in the attached Prospectus under the caption "Federal Income Tax
Consequences" has relied upon the opinion of Armstrong Teasdale LLP. Certain
legal matters will be passed on for the underwriter by Rogers & Wells LLP, New
York, New York. As to certain matters of Maryland law, Rogers & Wells LLP will
rely on the opinion of Armstrong Teasdale, LLP.
EXPERTS
The consolidated financial statements and schedule of EPR appearing in our
Annual Report on Form 10-K for the year ended December 31, 1998, have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
thereon included in the Annual Report on Form 10-K and incorporated in this
Prospectus Supplement by reference. Such consolidated financial statements and
schedule are incorporated by reference in reliance on the report given upon the
authority of that firm as experts in auditing and accounting.
S-8
<PAGE> 9
PROSPECTUS
ENTERTAINMENT PROPERTIES TRUST
5,000,000 COMMON SHARES OF BENEFICIAL INTEREST
Entertainment Properties Trust may offer common shares of
beneficial interest, par value $.01 per share, from time to
time. The shares will be offered for cash on terms to be
determined at the time of the offering.
The shares may be sold directly or through agents,
underwriters or dealers. If any agent or underwriter is
involved in selling the shares, its name, the applicable
purchase price, fee, commission or discount arrangement, and
the net proceeds to the Company from the sale of the shares
will be listed in a Prospectus Supplement. See "Plan of
Distribution."
Our shares are traded on the New York Stock Exchange under the
ticker symbol "EPR." The last reported sales price of the
Shares on June 1, 1999 was $18.687 per share.
The Company has paid regular quarterly dividends to its
shareholders. See "About EPR" and "Description of Common
Shares."
The specific terms of an offering will be included in one or
more Supplements to this Prospectus. You should read this
Prospectus and the applicable Prospectus Supplement carefully
before you invest.
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.
THIS PROSPECTUS MAY NOT BE USED FOR ANY SALES OF SHARES UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS JUNE 2, 1999.
<PAGE> 10
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 ("EPR" or the
"Company") may sell up to 5,000,000 common shares of beneficial interest (the
"Shares") described in this Prospectus in one or more offerings.
This Prospectus provides you with a general description of the Shares. Each time
we sell Shares, we will provide a Prospectus Supplement that will contain
specific information about the terms of the offering. The Prospectus Supplement
may also update or change information provided in this Prospectus. You should
read both this Prospectus and the applicable Prospectus Supplement together with
the additional information described under "Where You Can Find More
Information."
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, as amended
(the "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 Seven World Trade
Center, 13th Floor, New York, New York 10048, 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, as amended (the
"Securities Act"). The registration statement contains additional information
about EPR and the Shares. You may view the registration statement and Exhibits
on file at the SEC's website. You may also inspect the registration statement
and Exhibits without charge at the SEC's offices at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and you may obtain copies from the SEC at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS 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, 1998.
2. EPR's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
3. EPR's Proxy Statement dated March 30, 1999.
4. 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 Shares covered by this Prospectus.
1
<PAGE> 11
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, 1200 Main Street, Suite 3250, Kansas City,
Missouri, 64105, telephone number (816) 472-1700, facsimile (816) 472-5794,
e-mail [email protected].
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 SHARES IF
IT IS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. WE ARE ONLY OFFERING THE SHARES 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
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
<PAGE> 12
RISK FACTORS
Before you invest in our Shares, you should be aware that purchasing our Shares
involves various risks, including those described below. You should carefully
consider these risk factors, together with the other information in this
Prospectus and accompanying Prospectus Supplement, before purchasing our Shares.
WE CANNOT ASSURE YOU WE WILL CONTINUE PAYING DIVIDENDS AT HISTORICAL RATES
Our ability to continue paying dividends at historical rates will depend on a
number of factors, including our financial condition and results of future
operations, the performance of lease terms by tenants, our ability to acquire,
finance and lease additional properties at attractive rates, and provisions in
our loan covenants.
THERE ARE RISKS ASSOCIATED WITH OUR DEBT FINANCINGS
It is our current policy to maintain a ratio of debt-to-total market
capitalization of less than 50%. Nevertheless, EPR is subject to the customary
risks associated with debt financing, including the risk that interest rates on
our existing Bank Credit Facility or future debt financings may increase (which
could reduce our ability to pay dividends), that our cash flow may be
insufficient to meet debt service requirements, and that we may not be able to
refinance or repay the debt as it becomes due. A portion of our debt financing
is secured by mortgages on certain of our properties, which could be lost in
foreclosure if we fail to meet mortgage payments.
DEBT RESTRICTIONS MAY AFFECT OPERATIONS AND NEGATIVELY AFFECT OUR ABILITY TO
REPAY INDEBTEDNESS AT MATURITY
Our $150 million Bank Credit Facility contains a number of provisions that
restrict the amount of secured debt we can obtain and the amount of dividends we
can pay our shareholders (dividends may not exceed 90% of funds from operations
("FFO") unless a higher amount is necessary to preserve our status as a real
estate investment trust ("REIT")), as well as provisions affecting the
eligibility and value of properties in our borrowing base. The Bank Credit
Facility matures in March 2001. Our $108 million secured mortgage facility does
not mature until July 11, 2028, but is subject to a "hyper-amortization" feature
commencing in 2008 which may require us to repay or refinance that debt at that
time. If we cannot obtain acceptable financing to refinance this indebtedness at
the appropriate time, we may have to sell properties to repay the indebtedness
or certain properties could be foreclosed upon, which could adversely affect our
results of operations and financial condition. If our mortgage facility is
foreclosed upon, this may accelerate our Bank Credit Facility and would cause us
to lose income and asset value.
POTENTIAL ENVIRONMENTAL LIABILITY
Under federal, state and local laws relating to the protection of the
environment ("Environmental Laws"), a current or previous owner of real estate
may be liable for contamination resulting from the presence or discharge of
hazardous or toxic substances on the property. Owners may be required to
investigate and remediate contamination on the property as well as contamination
that has migrated from the property. Environmental Laws typically impose
liability and clean-up responsibility regardless of whether the owner knew of or
caused the contamination. This liability may be joint and several unless the
harm is divisible and there is a reasonable basis to allocate responsibility. An
owner or operator of a property may also be subject to claims by third parties
based on personal injury, property damage or other costs, including
investigation and clean-up costs, resulting from environmental contamination.
Environmental Laws may also impose restrictions on the manner in which a
property is used or transferred. These restrictions may impose expenditures.
Environmental Laws also impose potential liability on parties who arrange the
transportation, disposal or treatment of hazardous or toxic substances, even if
they do not operate the facility at which the substances are disposed of or
treated.
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<PAGE> 13
Our leases require tenants to operate the properties in compliance with
Environmental Laws and to indemnify us against environmental liability arising
from the operation of the properties. However, we could be subject to strict
liability by virtue of our ownership of the properties. There is also a risk
that tenants may not satisfy their environmental compliance and indemnification
obligations under the leases. Any of these conditions could have an adverse
effect on our results of operations and financial condition and our ability to
service our debt and pay dividends to shareholders.
GENERAL RISKS OF OWNING REAL ESTATE
Although our lease terms obligate the tenants to bear substantially all of the
costs of operating the properties, EPR is subject to the general risks of
investing in real estate. These include the performance of lease terms by
tenants, changes in economic conditions, local conditions (such as oversupply of
megaplex theatres or other entertainment-related properties), the lease rates we
are able to obtain, the supply and price of quality entertainment properties,
the impact of Environmental Laws, changes in tax, zoning and other laws, and
other real estate risks. In the case of entertainment-themed retail centers
("ETRC's"), we may bear the risk of finding a sufficient number of suitable
tenants to permit the centers to operate profitably and provide a return to the
Company. These centers may also be subject to fluctuations in occupancy rates,
which would also affect our operating results. If we enter into joint ventures
with developers to develop megaplex theatres or ETRC's, we will bear the risk
that the joint venture partner may not perform, which could create delays in
construction or leasing. There is no assurance tenants will elect to renew their
leases. If a tenant does not renew its lease or defaults on its lease
obligations, there is no assurance we could obtain a substitute tenant on
acceptable terms. We may be required to modify a megaplex theatre property in
order to release it, which could entail a significant capital cost. If any such
property is a ground leased property, we would be required to continue making
the ground lease payments or risk losing the property. If we ever desire or are
required to sell or refinance a property, we will be subject to risks arising
from fluctuations in interest rates and real estate values and credit
availability. In addition, real estate investments are relatively illiquid,
which would limit our ability to sell properties if required to meet debt
obligations or generate operating capital.
THE NEED TO RAISE ADDITIONAL CAPITAL TO FUND PROPERTY ACQUISITIONS
Our ability to acquire additional properties will depend on our ability to
obtain additional financing on favorable terms, which will in turn be dependent
on factors such as conditions in equity or credit markets and the performance of
REITs generally. EPR has filed the registration statement, which includes this
Prospectus, for the purpose of raising funds for the acquisition of properties
or paying down debt which may then be used to acquire properties, but the actual
amount of proceeds we will raise under this Prospectus and the Prospectus
Supplements cannot be predicted at this time. We may seek to leverage the
proceeds raised in one or more offerings under this Prospectus and Prospectus
Supplements by incurring additional borrowing or entering into joint ventures,
but the availability of these types of financings cannot be assured.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Our ability to continue qualifying as a REIT will depend on our compliance with
a number of conditions under the Internal Revenue Code of 1986, as amended (the
"Code"), as well as possible future legislation, new regulations, administrative
interpretations or court decisions. If we fail to maintain our REIT
qualification for any reason, we would be subject to corporate taxation and
would not be entitled to a tax deduction for dividends paid to our shareholders.
This would significantly reduce the funds available for distribution to our
shareholders. In addition, any loss of our REIT status would mean we would no
longer be required to pay dividends to our shareholders.
DEPENDENCE ON A SINGLE TENANT AND LEASE GUARANTOR FOR A SUBSTANTIAL PORTION OF
LEASE REVENUES
Approximately 70% of our properties are leased to America Multi-Cinema, Inc. or
its subsidiaries ("AMC"), a subsidiary of AMC Entertainment, Inc. ("AMCE") which
has guaranteed AMC's
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<PAGE> 14
performance under those leases. EPR has diversified and expects to continue
diversifying its asset base by entering into lease transactions with a number of
other quality operators, but EPR's revenues and its continuing ability to pay
shareholder dividends remain substantially dependent on AMC's performance under
its leases and AMCE's performance under its guaranty. Peter C. Brown, the
Chairman of our Board of Trustees, is Co-Chairman, President and a director of
AMCE and Executive Vice President and Chief Financial Officer of AMC. Mr. Brown
does not participate in discussions with AMC regarding acquisition or lease
terms.
OPERATING RISKS IN THE ENTERTAINMENT INDUSTRY THAT MAY AFFECT THE OPERATIONS OF
EPR'S TENANTS
The ability of our tenants to operate successfully in the entertainment industry
and remain current on their lease obligations depends on a number of factors,
including the availability and popularity of motion pictures, the performance of
those pictures in tenants' markets, the allocation of popular pictures to
tenants and the terms on which the pictures are licensed. Neither EPR nor our
tenants have control over the operations of motion picture distributors.
Megaplex movie theatres require greater capital expenditures than the previous
generation of multiplex theatres. Our ability to recover our investment in these
properties in the event of a default by tenants under the leases is uncertain.
The success of "out-of-home" entertainment venues such as megaplex theatres and
ETRC's also depends on general economic conditions and the willingness of
consumers to spend time and money on out-of-home entertainment. The development
of megaplex movie theatres has rendered many older multiplex theatres obsolete.
To the extent tenants own or operate a substantial number of multiplexes, the
financial condition of those tenants could be adversely affected by this trend.
Megaplex theatre operators could also be adversely affected by any overbuilding
of megaplex theatres in their markets.
SOME LOSSES ARE NOT INSURED AGAINST
Our leases require tenants to insure the properties against casualty, workers'
compensation claims and other perils. However, there are some risks (such as
hurricanes, earthquakes and wars) that are either not insurable or only
insurable at prohibitive cost. If an uninsured loss occurs, we could lose our
investment in a property and the anticipated lease revenue from the property.
THERE ARE RISKS IF TENANTS BECOME BANKRUPT
If any of our tenants or lease guarantors is the subject of a bankruptcy
proceeding, the tenant or lease guarantor could reject the lease or guaranty,
which could deprive us of the rental revenue from that property and would leave
us only with a limited claim for damages.
THERE ARE RISKS INVOLVED IN REAL ESTATE DEVELOPMENT
Our ETRC development in Westminster, Colorado and any future ETRC's or other
properties we may seek to develop will involve risks not typically encountered
in the purchase and lease-back of megaplex theatres which are developed by the
operator. Although our officers have experience in real estate development, we
do not employ a significant in-house development staff. Although this permits us
to operate more efficiently, it will require us to rely on joint venture
partners or other developers with which we work. There can be no assurance these
parties will successfully develop those properties or that cost overruns or
other problems will not be encountered in the development process.
DEPENDENCE ON EXECUTIVE OFFICERS
EPR's success depends to a large extent upon the experience and abilities of our
executives, including our Chairman, Peter C. Brown, our President, Robert L.
Harris, and our Chief Operating Officer and Chief Financial Officer, David M.
Brain. The loss of any of these executives' services could have a material
adverse effect on the Company.
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<PAGE> 15
THE IMPACT OF GOVERNMENT REGULATION
EPR's properties are subject to federal, state and local laws and regulations,
including zoning, public access, environmental and other regulations and the
Americans with Disabilities Act. Although our tenants have assumed the
responsibility to comply with these laws and regulations, the cost of that
compliance adds to our tenants' cost of doing business which could have an
impact on their lease performance. If tenants fail to comply with these laws or
regulations, EPR may be required to do so, which would affect our operating
results and could affect the amount of shareholder dividends.
THE EFFECT OF COMPETITION
Although EPR is the first publicly-held REIT formed exclusively to invest in
entertainment-related properties, EPR faces competition from other suppliers of
capital to the entertainment industry and may in the future be subject to
competition from other entertainment REITs.
ANTI-TAKEOVER PROVISIONS WHICH MAY AFFECT SHAREHOLDER VALUE
There are a number of provisions in EPR's Declaration of Trust, Maryland law and
agreements with AMCE which could make it more difficult for a party to make a
tender offer for our Shares or complete a takeover of EPR which is not approved
by the Board of Trustees. These include provisions for a staggered Board of
Trustees, a limit on beneficial ownership of Shares as described in "Description
of Common Shares," the ability of the Board of Trustees to issue preferred
shares or reclassify preferred or common shares without shareholder approval,
limits on the ability of shareholders to remove trustees without cause, a
requirement 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, and AMCE's
ability to terminate a Right to Purchase Agreement for additional megaplex
theatre properties in the event of a change in control of EPR. Any or all of
these provisions could delay or prevent a change in control of EPR, even if the
change were in the shareholders' interests or offered a greater return to
shareholders.
EFFECT OF MARKET INTEREST RATES ON SHARE PRICES
The annual yield on the price paid for our Shares from dividends paid by EPR may
influence the public market price for our Shares. An increase in market interest
rates may persuade persons who may otherwise invest in our Shares to seek higher
yields from their investments, which may adversely affect the market price for
our Shares.
SHARES AVAILABLE FOR FUTURE SALE
We cannot predict the effect, if any, that future sales of Shares or exercises
of Share options for future sales may have on the market price for our Shares.
Sales of substantial amounts of our Shares, or the perception that those sales
could occur, may adversely affect the market price for our Shares.
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<PAGE> 16
BUSINESS AND PROPERTIES
BUSINESS
EPR was formed on August 22, 1997 as a Maryland-incorporated real estate
investment trust. We completed an initial public offering of our Shares on
November 18, 1997.
EPR is a self-administered REIT. Our real estate portfolio currently consists of
21 megaplex theatre properties located in eleven states and one ETRC development
property located in Westminster, Colorado. We also own land parcels and related
properties adjacent to several of our theatre properties. Our theatre properties
are leased to leading theatre operators, including AMCE, Consolidated Theatres,
Muvico Entertainment LLC ("Muvico") and Edwards Theatre Circuits, Inc
("Edwards"). We have also agreed to acquire theatre properties to be operated by
Regal Cinemas and Loews Cineplex Entertainment.
Megaplex theatres typically have at least 14 screens with predominantly
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, superior customer service and more comfortable seating typical
of megaplex theatres.
We expect the development of megaplex theatres to continue in the United States
and abroad in the immediate future. As a result of the significant capital
commitment involved in building these properties and the experience and industry
relationships of our management, we believe EPR 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. We
believe our ability to finance these properties will enable EPR to continue to
grow and diversify its asset base.
As a REIT, EPR primarily leases its properties to tenants on a triple-net basis
and does not operate its properties. Instead, the tenants, and not the Company,
assume the primary risks involved in the operation of the properties.
BUSINESS OBJECTIVES AND STRATEGIES
Our business objectives are to continue enhancing shareholder value by achieving
predictable and increasing FFO per Share (defined as net income plus
depreciation divided by the number of Shares outstanding) and acquiring and
developing a diversified portfolio of high-quality properties leased to
entertainment and entertainment-related business operators, generally under
long-term triple-net leases. We intend to achieve these objectives by continuing
to execute the Growth Strategies, Operating Strategies and Capitalization
Strategies described below:
GROWTH STRATEGIES
- Purchasing additional properties pursuant to existing agreements between EPR
and leading theatre operators.
- Developing or acquiring additional megaplex theatre properties and leasing
those properties to other qualified theatre exhibitors.
- Developing or acquiring, and leasing to qualified operators or master
tenants, ETRC's and single-tenant, out-of-home, location-based entertainment
and entertainment-related properties.
Future Properties. Pursuant to agreements with AMC's parent, AMCE, and with
Edwards, Muvico and others, EPR has the right to acquire and lease back to the
operator a number of existing and future megaplex theatre properties. See
"Tenants and Leases" and "Pending Acquisitions" under "Properties" for a
discussion of these agreements.
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<PAGE> 17
Other Megaplex Properties. We intend to pursue acquisitions of other
high-quality properties from operators with a strong market presence and believe
we will continue to have opportunities to purchase megaplex theatres developed
by these operators.
Entertainment-Themed Retail Centers. We intend to pursue acquisitions of
additional ETRC's, which are generally large multi-tenant retail developments
that incorporate such elements as megaplex theatres, restaurants, book and/or
music superstores, interactive entertainment venues and other specialty retail
or leisure-time activities. EPR believes the most important component of an ETRC
is a megaplex theatre because it attracts substantial customer traffic to the
site. ETRC's typically provide a family entertainment experience by creating an
atmosphere of fun and excitement. We believe that by broadening the traditional
retail shopping concept, ETRC's attract a greater number of customers to spend
more time and money at a single location. We also believe access to capital in
this developing market is generally limited for all but the largest
entertainment companies. As a result of the significant capital commitment
involved in developing these projects and the experience and relationships of
our management, we believe we will 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. Our ability to finance the acquisition and
development of these properties should enable EPR to grow and diversify its
asset base.
We believe we will have opportunities to provide capital to developers and
operators of entertainment and entertainment-related properties due to our
strong capital base of shareholders' equity, the proceeds to be raised in this
offering and funds available under our Bank Credit Facility. We also believe we
should be in a position to acquire new properties for Shares or a combination of
cash and Shares, creating the opportunity for transactions structured on a
tax-deferred basis to the seller (though a subsidiary partnership or otherwise)
and thereby potentially reducing the price that would be paid in all-cash
transactions. We have filed a registration statement with the Securities and
Exchange Commission for the purpose of registering up to 5,000,000 Shares for
potential issuance in exchange for the acquisition of properties. Any of these
methods would reduce the amount of cash we would otherwise invest in properties.
OPERATING STRATEGIES
- Purchasing single-tenant properties supported by long-term leases or
multi-tenant properties that are substantially leased to minimize the risks
inherent in initial leasing.
- Structuring leases, where possible, on a triple-net or similar basis under
which the tenants bear substantially all operational expenses connected with
the properties.
- Structuring leases for contractual increases in rent and/or percentage rent
based upon a percentage of a tenant's gross sales over a pre-determined
level.
- Developing and maintaining long-term working relationships with theatre,
restaurant, retail and other entertainment-related business operators and
developers.
- Diversifying our asset base by property type and tenant.
Lease Risk Minimization. To avoid initial lease-up risks and produce a
predictable income stream, we intend to acquire single-tenant properties that
are leased under long-term leases or multi-tenant properties that are
substantially leased or leased to a master tenant. 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 intend to structure leases, where possible, on a triple-net
or similar 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, we intend to 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 will seek to develop and maintain long-term working
relationships with theatre, restaurant and other entertainment-related business
operators and developers by providing capital for
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<PAGE> 18
multiple properties on a national or regional basis, thereby enhancing
efficiency and value to those operators and to EPR. In addition to existing
tenants, we will target tenants whose competitive position and financial
strength are deemed adequate to meet their obligations throughout the lease
terms.
Portfolio Diversification. EPR will endeavor to further diversify its asset base
by property type and tenant. In pursuing this diversification strategy, we will
target theatre, restaurant, retail and other entertainment-related business
operators which we view as leaders in their market segments and which have the
financial strength to compete effectively and perform under their leases with
the Company. If, as expected, ETRCs include an increasing number of diverse
tenants, we expect to be able to serve the widening demands of this market and
include additional complementary properties in our portfolio.
CAPITALIZATION STRATEGIES
- Employing moderate leverage, including the Bank Credit Facility, to fund
additional acquisitions.
- Pursuing joint venture opportunities and other arrangements to fund
additional property acquisitions.
- Maintaining a debt-to-total capitalization ratio consistent with prudent
management and market expectations.
- Paying regular distributions and periodically increasing distributions to
shareholders to the extent expected increases in FFO and Cash Available for
Distribution (net earnings plus depreciation and amortization minus capital
expenditures and principal payments on indebtedness) are realized.
Moderate Use of Leverage; Debt-to-Total Capitalization. We endeavor to enhance
shareholder return through the moderate use of leverage. As of March 31, 1999,
we had a $150 million Bank Credit Facility with approximately $44 million in
loan availability. We may reduce the principal balance of the Bank Credit
Facility with net proceeds from this offering and use advances under the Bank
Credit Facility to finance the acquisition of properties. In addition, we may in
the future obtain additional secured debt and/or refinance our existing
unsecured debt with long-term debt or proceeds from the issuance of 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 as a
percentage of shareholders' equity plus total debt) of less than 50%.
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 such joint ventures.
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 the dividend rate are the Company's
results of operations, including FFO per Share, and the Company's Cash Available
for Distribution. We expect to periodically increase distributions as FFO and
Cash Available for Distribution increase and as other considerations and factors
warrant.
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<PAGE> 19
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.
<TABLE>
<CAPTION>
BUILDING
ACQUISITION (GROSS
PROPERTY LOCATION DATE SCREENS SEATS SQ. FT) TENANT
- -------- ----------------- ----------- ------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
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)...... Houston, TX 11/97 24 5,098 107,690 AMC
Oakview 24(1)........... Omaha, NE 11/97 24 5,098 107,402 AMC
Leawood Town Center 20.. Kansas City, MO 11/97 20 2,995 75,224 AMC
Gulf Pointe 30(2)....... Houston, TX 02/98 30 6,008 130,891 AMC
South Barrington 30..... Chicago, IL 03/98 30 6,210 130,891 AMC
Cantera 30(2)........... Chicago, IL 03/98 30 6,210 130,757 AMC
Mesquite 30(2).......... Dallas, TX 04/98 30 6,008 130,891 AMC
Hampton Town Center 24.. Norfolk, VA 06/98 24 5,098 107,396 AMC
Raleigh Grand 16........ Raleigh, NC 08/98 16 2,596 51,450 Consolidated
Muvico Pompano 18....... Pompano Beach, FL 08/98 18 3,424 73,637 Muvico
Pompano Kmart........... Pompano Beach, FL 11/98 -- -- 80,540 Kmart
Nickels Restaurant...... Pompano Beach, FL 11/98 -- -- 5,600 Nickels
Westminster Promenade... Westminster, CO 10/98 -- -- -- Multi-Tenant
Muvico Paradise 24...... Davie, FL 11/98 24 4,180 96,497 Muvico
Boise Stadium(1)........ Boise, ID 12/98 20 4,734 140,300 Edwards
Aliso Veijo 20.......... Los Angeles, CA 12/98 20 4,352 98,557 Edwards
--- ------ ---------
TOTAL......... 494 97,429 2,302,443
</TABLE>
- ---------------------------
(1) Third party ground leased property. Although EPR is the tenant under the
ground leases and has assumed responsibility for performing the obligations
thereunder, pursuant to the theatre leases, the tenants are responsible for
performing EPR's obligations under the ground leases.
(2) In addition to the theatre property itself, EPR has acquired land parcels
adjacent to the theatre property which EPR 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.
All of the properties are owned or ground leased directly by the Company.
PENDING ACQUISITIONS
On July 22, 1998, EPR announced a definitive agreement with Sofran Powder
Springs, Limited Partnership to acquire the Powder Springs 22-screen, 5,194-seat
megaplex theatre in suburban Atlanta, Georgia. EPR intends to acquire the
22-screen theatre in the third quarter of 1999. The theatre will be operated by
Regal Cinemas, based in Knoxville, Tennessee. According to publicly available
information, Regal Cinemas is a national movie exhibitor that operates over 250
theatres in 28 states with more than 2,400 screens.
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<PAGE> 20
On February 17, 1999, EPR announced the pending acquisition of the Loews
Woodridge 18 theatre located in Woodridge, Illinois in suburban Chicago. EPR
intends to acquire the 18 screen, 4,343 seat megaplex theatre during the second
quarter of 1999. The theatre will be operated by Loews Cineplex Entertainment
Corporation, the world's largest publicly traded theatre exhibition company
measured by revenues.
TENANTS AND LEASES
EPR acquired an initial portfolio of sixteen megaplex theatre properties (the
"AMC Properties") from subsidiaries of AMCE, including AMC, for an aggregate
purchase price of approximately $362 million. Eleven of the AMC Properties were
acquired in 1997 and five were acquired in 1998. Twelve of the AMC Properties
were described in the Company's IPO Prospectus as the "Initial Properties" to be
acquired by the Company, and four AMC Properties were among the "Option
Properties" described in the IPO Prospectus. The AMC Properties have an
aggregate of 396 screens and 78,160 seats. Each AMC Property is located in a
large metropolitan market and was constructed on or after May 1995. Each AMC
Property was acquired by the Company at a price equal to AMCE's cost of
development and construction.
EPR's existing leases with AMC (the "AMC Leases") provide for aggregate annual
rentals of approximately $38.3 million, or an average annual rental of
approximately $2.4 million per Property. AMC's obligations under each Lease are
guaranteed by AMCE. The Leases have initial terms ranging from 13 to 15 years
(the "Fixed Term") and may be extended upon the same terms and conditions for
four additional five-year terms (each, an "Extended Term") at the option of AMC.
The Leases are triple-net leases that require AMC to pay substantially all
expenses associated with the operation of the Properties, including taxes and
other governmental charges, insurance, utilities, service, maintenance and any
ground lease payments. Each Lease requires that, for a period of ten years, AMC
must operate the Property only as a movie theatre and activities incidental
thereto.
The rental schedules under the AMC Leases provide a stable source of cash flow
while allowing EPR to participate in future revenue growth experienced at those
theatres. Rent for the first year of each Lease is set at a fixed amount and is
subject to increase each year by the percentage increase in the Consumer Price
Index ("CPI") for the previous year, not to exceed 2%. In addition, once AMC
earns revenues in excess of a baseline amount it becomes obligated to pay annual
percentage rent on the basis of such revenues. However, EPR does not expect to
receive any annual percentage rent from AMC for at least five years after the
commencement date of each Lease.
During each Fixed Term, certain of AMC's obligations, including payment
obligations, under each Lease are cross-defaulted to each of the other AMC
Leases until AMCE's senior debt obligations or corporate credit are rated
investment grade or AMC's rental payments to EPR represent less than 50% of
AMC's Lease obligations, but AMC's payment obligations under the Leases and
AMCE's obligations under its guarantees are not secured by any assets of AMC or
AMCE.
Rental amounts for the properties purchased from AMC were determined by the
management of AMCE and EPR and were not negotiated on an arms-length basis. The
rental payments are based on an initial capitalization rate of 10.5%, which EPR
believes reflects the fair market value of the AMC Properties to the Company
based on rates for comparable triple-net lease transactions.
EPR has the option to purchase one additional megaplex theatre property from
AMCE, or its affiliates, located in Livonia, Michigan for a purchase price equal
to AMCE's cost of developing and constructing the property. The Livonia theatre,
when and if acquired by the Company, would be leased to AMC on a triple-net
basis on terms similar to the Company's existing AMC Leases.
Until November 2002, EPR has a right of first refusal and first offer to
purchase and lease back to AMC any megaplex theatre and related entertainment
property acquired or developed and owned (or ground leased) by AMCE or its
subsidiaries, exercisable upon AMCE's intended disposition of the property. This
right to purchase is intended to give the Company access to new projects
developed by AMCE and its
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<PAGE> 21
subsidiaries, thereby providing opportunities for future growth, although AMCE
may lease entertainment and entertainment-related properties from owners other
than the Company.
AMCE is one of the leading theatrical exhibition companies in North America
measured by revenues, and is an industry leader in the development of megaplex
theatre complexes. In the fiscal year ended April 2, 1998, AMCE's consolidated
revenues were $846.8 million. As of April 2, 1998, AMCE, through its
subsidiaries, operated 229 theatres with an aggregate of 2,442 screens located
in 23 states, the District of Columbia, Portugal and Japan. Approximately 61% of
the screens operated by AMCE are located in Florida, California, Texas, Missouri
and Michigan and approximately 70% of AMCE's domestic screens are located in
areas among the 20 largest U.S. "Designated Market Areas" (television market as
defined by Nielsen Media Research).
The Company acquired the Raleigh Grand 16 megaplex theatre property in Raleigh,
North Carolina from Real Estate Innovations LLC ("REI") in the third quarter of
1998. The Lease provides for a base term of 20 years with minimum annual rental
payments and percentage rent payments. The theatre is operated by Consolidated
Theaters. In addition, the Company has the option to acquire, for a
pre-determined price, three additional megaplex movie theatre properties to be
developed by REI and operated by Consolidated Theatres in the South and
Mid-Atlantic regions.
The Company acquired two megaplex theatre properties operated by Muvico in 1998.
Leases for the Muvico properties provide for a base term of 20 years with
minimum annual rental payments and percentage rent payments. In addition, the
Company has the option to acquire, for a pre-determined price, five additional
megaplex movie theatre properties, predominantly located in the State of
Florida, to be operated by Muvico.
The Company acquired two megaplex theatre properties from Edwards in the fourth
quarter of 1998. Leases for the Edwards properties provide for a base term of 20
years with minimum annual rental payments and percentage rent payments. In
addition, the Company has a right of first refusal to acquire four additional
megaplex movie theatre properties currently operated by Edwards in the State of
California. The Company's rights under the agreement include the ability to
match any purchase offer for the sites during the right of first refusal period.
We continue to evaluate potential megaplex theatre properties for acquisition
and lease-back to quality theatre operators, as well as additional opportunities
to develop or acquire ETRC's.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, EPR intends
to use the net proceeds from any sale of Shares for general corporate purposes,
including the acquisition of properties and repayment of debt. Net proceeds from
the sale of Shares may initially be temporarily invested in short-term
securities.
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.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT HIS 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 Code.
EPR intends to continue to satisfy those requirements. No assurance can be
given, however, that these requirements will be met.
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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.
Armstrong Teasdale 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 Armstrong Teasdale 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
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 depends upon our ability to meet, through actual annual operating
results, distribution levels and diversity of Share ownership, the various
qualification tests imposed under the Code discussed below, the results of which
will not be reviewed by Armstrong Teasdale LLP. Accordingly, no assurance can be
given that the actual results of the Company's 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, it will be subject to
federal income tax as if it were a domestic corporation, and its 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 its shareholders could be
reduced.
TAXATION OF THE COMPANY
General
In any year in which EPR qualifies as a REIT, in general, it will not be subject
to federal income tax on that portion of its net income that it distributes 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, it 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, it 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
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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 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 Treasury has proposed legislation
that would also prohibit a REIT from owning securities in a corporation that
represent 10 percent of the corporation's vote or value. 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. In addition, beginning
in 1998, 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 upon exercising reasonable diligence, would not have known, whether it
had failed condition (6). The Treasury has also proposed legislation that would
change condition (6) by preventing any "person" (i.e., a corporation,
partnership or trust) from owning shares of a REIT possessing more than 50% of
the total combined voting power of all classes of voting shares or more than 50%
of the total value of shares of all classes. 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, EPR has placed certain restrictions on the transfer of its
Shares to prevent further concentration of stock ownership. See "Description of
Common Shares." To evidence compliance with these requirements, EPR must
maintain records which disclose the actual ownership of its outstanding Shares.
In fulfilling its obligations to maintain records, EPR must demand written
statements each year from the record holders of designated percentages of its
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.
Although EPR intends to satisfy the shareholder demand letter rules described in
the preceding paragraph, its failure to satisfy these requirements will not
result in its 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.
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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) 5% of the value
of EPR's total assets as to any one non-government issuer; or (ii) 10% of the
outstanding voting securities of any one issuer. In addition, EPR may own 100%
of "qualified REIT subsidiaries," which are, in general, corporate subsidiaries
100% owned by a REIT. 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.
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. 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). Beginning in 1998, rents will not be
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.
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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). Beginning in 1998, income
earned on liability hedges against all of a REIT's indebtedness, such as
options, futures, and forward contracts, will 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.
The 30% Test. Prior to 1998, EPR must have derived less than 30% of its gross
income for each taxable year from the sale or other disposition of (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions), (ii) stock or securities held for less than one year,
and (iii) property in a "prohibited transaction." The 30% test has been repealed
effective for tax years beginning after December 31, 1997.
Annual Distribution Requirements
In order to qualify as a REIT, EPR is required to make distributions (other than
capital gain distributions) to its shareholders each year in an amount at least
equal to (A) the sum of (i) 95% of EPR's REIT Taxable Income (computed without
regard to the dividends paid deduction and the REIT's net capital gain), and
(ii) 95% 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 EPR timely files its tax return for that year and if paid on or
before the first regular distribution payment after such declaration. To the
extent EPR does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its REIT Taxable Income, as adjusted, it will
be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. (However, a REIT can elect to
"pass through" any of its taxes paid on its undistributed net capital gain to
its shareholders on a pro rata basis.) Furthermore, if the REIT should fail to
distribute during each calendar year at least the sum of (i) 85% of its ordinary
income for that year, (ii) 95% of its net capital gain for that year, and (iii)
any undistributed taxable income from prior periods, the REIT would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. For these purposes, dividends declared to shareholders of
record in October, November or December of one calendar year and paid by January
31st of the following calendar year are deemed paid as of December 31st of the
initial calendar year.
EPR believes it has made and will make timely distributions sufficient to
satisfy the annual distribution requirements. It is possible that in the future
EPR may not have sufficient cash or other liquid assets to meet the 95%
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 EPR's REIT Taxable
Income on the other hand. Further, it is possible that, from time to time, EPR
may be allocated a share of net capital gain attributable to any of depreciated
property that exceeds its
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allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, EPR will closely monitor the relationship between
its REIT Taxable Income and cash flow and, if necessary, will borrow funds in
order to satisfy the distribution requirement. See "Risk Factors."
If EPR fails to meet the 95% distribution requirement as a result of an
adjustment to its 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 EPR fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, EPR will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which EPR fails to qualify
will not be deductible by EPR, nor will they be required to be made. In such
event, to the extent of EPR's current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate shareholders may be eligible for
the dividends-received deduction. Unless entitled to relief under specific
statutory provisions, EPR 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 EPR would be entitled to such statutory
relief.
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 its current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable to its 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 EPR's 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 its 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
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declared by EPR in October, November or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by EPR and received by the shareholder on December 31st of that year;
provided the dividend is actually paid by EPR on or before January 31st of the
following calendar year. Shareholders may not include in their own income tax
returns any net operating losses or capital losses of EPR.
Distributions made by EPR and gain arising from the sale or exchange by a U.S.
Shareholder of Shares will not be treated as passive activity income, and, as a
result, U.S. Shareholders generally will not be able to apply any "passive
losses" against such income or gain. Distributions made by EPR (to the extent
they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of Shares (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 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 its 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 31% 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." 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 that it receives from EPR. However, because the
Shares are publicly traded, no assurance can be given in this regard.
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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. 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 4224 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
such 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
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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 who 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 or her Shares under circumstances in
which the sale was attributable to a U.S. office, in which case the non-resident
alien individual will be subject to a 30% tax on the individual's capital gains.
For each year in which EPR qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by EPR of USRPIs ("USRPI Capital
Gains"), such as properties beneficially owned by EPR, will be taxed to a
Non-U.S. Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed
to a Non-U.S. Shareholder as gain effectively connected with a U.S. trade or
business regardless 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.
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 the Company 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 Shares are is 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
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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 will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
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.
EACH INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE OWNERSHIP AND SALE OF SHARES IN AN
ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF COMMON SHARES
This summary of our Shares is not meant to be complete and is qualified in its
entirety by reference to our Declaration of Trust and Bylaws, copies of which
have been filed as Exhibits to a Current Report on Form 8-K that was filed with
the SEC on June 7, 1999.
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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.
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
- Voting Rights -- Common shareholders have the right to vote their
Shares. Each 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 that the holders of a
majority of the outstanding Shares can elect all of the trustees
nominated for election and the holders of the remaining 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 shareholders after
satisfaction of our liabilities and the preferential rights of any preferred
shares that 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.
OWNERSHIP LIMIT
Our Declaration of Trust restricts the number of Shares that may be owned by
individual shareholders. Generally, for EPR to qualify as a REIT under the Code,
not more than 50% in value of its 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. 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 Declaration of Trust generally provides that any person holding more than
9.8% of our outstanding Shares (the "Ownership Limit") may be subject to
forfeiture of the 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 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.
All persons who own more than 5% of the number or value of our outstanding
Shares must provide written notice to EPR containing certain information by
January 31st of each year.
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PLAN OF DISTRIBUTION
We may sell Shares:
- through underwriters or dealers;
- through agents;
- directly to one or more purchasers; or
- directly to shareholders.
We may effect the distribution of Shares 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; or
- at negotiated prices.
For each offering of Shares, the Prospectus Supplement will describe the plan of
distribution.
If we use underwriters in the sale, they will buy the Shares for their own
account. The underwriters may then resell the Shares in one or more transactions
at a fixed public offering price, at the market price in effect at the time of
sale or at a discount from the market price. The obligations of the underwriters
to purchase the Shares will be subject to certain conditions. The underwriters
will be obligated to purchase all the Shares offered if they purchase any
Shares. 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 Shares to those dealers as
principals. The dealers may then resell the Shares to the public at the 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 Shares
in any state that does not permit such an offer.
Underwriters, dealers and agents that participate in the distribution of Shares
may be deemed to be underwriters as defined in the Securities Act. Any
discounts, commissions or profit they receive when they resell the Shares 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 that 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
Shares 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 Shares, certain persons participating in the
offering may engage in transactions that stabilize or maintain the price of the
Shares. This may include over-allotments or short sales of the Shares, which
involve the sale by persons participating in the offering of more Shares than
EPR has sold to them. In those circumstances, these persons would cover the
over-allotments or short positions by purchasing Shares 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 Shares by
bidding for or purchasing Shares 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 Shares they sell are repurchased in stabilization
transactions. The effect of these transactions may be to stabilize or maintain
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the market price of the Shares 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
Armstrong Teasdale LLP, Kansas City, Missouri, will issue an opinion about the
legality of the Shares and EPR's qualification and taxation as a REIT under the
Code. In addition, the description of EPR's taxation and qualification as a REIT
under the caption "Federal Income Tax Consequences" will be based upon the
opinion of Armstrong Teasdale 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 Shares or the offering.
EXPERTS
The consolidated financial statements and schedule of EPR appearing in our
Annual Report on Form 10-K for the year ended December 31, 1998, have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
thereon included in the Annual Report on Form 10-K and incorporated in this
Prospectus by reference. Such consolidated financial statements and schedule are
incorporated by reference in reliance on the report given upon the authority of
that firm as experts in auditing and accounting.
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[ENTERTAINMENT PROPERTIES TUST LOGO]
ENTERTAINMENT PROPERTIES TRUST
1,200,000
COMMON SHARES
OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
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JUNE 3, 1999
[CIBC WORLD MARKETS LOGO]
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER INDIVIDUAL TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED
PROSPECTUS IN CONNECTION WITH THIS OFFERING. YOU SHOULD RELY ONLY ON THE
INFORMATION INCORPORATED BY REFERENCE OR CONTAINED IN THIS PROSPECTUS OR ANY
SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT OR
ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER TO SELL NOR ARE WE SEEKING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE
DOCUMENTS.
