UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2006

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

For the transition period from                      to                     

ENTERTAINMENT PROPERTIES TRUST

(Exact name of registrant as specified in its charter)

Maryland		43-1790877
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)
30 W. Pershing Road, Suite 201
Kansas City, Missouri		64108
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (816) 472-1700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common shares of beneficial interest,		New York Stock Exchange
par value $.01 per share
9.50% Series A cumulative redeemable preferred		New York Stock Exchange
shares of beneficial interest, par value $.01 per share
7.75% Series B cumulative redeemable preferred		New York Stock Exchange
shares of beneficial interest, par value $.01 per share
5.75% Series C cumulative convertible preferred		New York Stock Exchange
shares of beneficial interest, par value $.01 per share

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o

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

The aggregate market value of the common shares of beneficial interest (“common shares”) of the registrant held by non-affiliates, based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was $1,139,054,569.

At February 26, 2007, there were 26,458,875 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2007 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A are incorporated by reference in Part III of this Annual Report on Form 10-K.

 

 

FORWARD LOOKING STATEMENTS

Certain statements contained or incorporated by reference herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements may refer to financial condition, results of operations, plans, objectives, future financial performance and business of the Company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” “would,” “may” or other similar expressions in this Annual Report on Form 10-K. In addition, references to our budgeted amounts are forward looking statements. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these factors see “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

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

TABLE OF CONTENTS

		Page
PART I			4
Item 1. Business			4
Item 1A. Risk Factors			9
Item 1B. Unresolved Staff Comments			19
Item 2. Properties			20
Item 3. Legal Proceedings			25
Item 4. Submission of Matters to a Vote of Security Holders			25
PART II			26
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			26
Item 6. Selected Financial Data			28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			44
Item 8. Financial Statements and Supplementary Data			46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			89
Item 9A. Controls and Procedures			89
Item 9B. Other Information			91
PART III			91
Item 10. Directors, Executive Officers and Corporate Governance			91
Item 11. Executive Compensation			91
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13. Certain Relationships and Related Transactions, and Director Independence			92
Item 14. Principal Accountant Fees and Services			92
PART IV			92
Item 15. Exhibits and Financial Statement Schedules			92
Form of 1997 Share Incentive Plan Restricted Shares Award Agreement
Form of Option Certificate
Employment Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Subsidiaries
Consent of KPMG LLP
Section 302 Certification
Section 302 Certification
Section 906 Certification
Section 906 Certification

PART I

Item 1. Business

General

Entertainment Properties Trust (“we,” “us,” “EPR” or the “Company”) was formed on August 22, 1997 as a Maryland real estate investment trust (“REIT”) to capitalize on the opportunities to develop, acquire or finance the emerging class of destination entertainment and entertainment-related properties, including megaplex movie theatre complexes, entertainment retail centers and other destination recreational and specialty properties. We completed an initial public offering of our common shares of beneficial interest (“common shares”) on November 18, 1997.

We are a self-administered REIT. As of December 31, 2006, our real estate portfolio was comprised of over $1.5 billion in assets and consisted of 75 megaplex theatre properties (including three joint venture properties) located in 25 states and Ontario, Canada, two additional theatre properties under development, seven entertainment retail centers (including one joint venture property) located in Westminster, Colorado, New Rochelle, New York, Burbank, California and Ontario, Canada, and other destination recreational and specialty properties. We also own land parcels leased to restaurant and retail operators adjacent to several of our theatre properties. As of December 31, 2006, our portfolio of megaplex theatre properties consisted of 6.3 million square feet and was 100% occupied, and our portfolio of retail, restaurant and other properties consisted of 1.5 million square feet and was 95% occupied. The combined portfolio consisted of 7.8 million square feet and was 99% occupied. Our theatre properties are leased to leading theatre operators, including American Multi-Cinema, Inc. (“AMC”), a subsidiary of AMC Entertainment, Inc. (“AMCE”), Muvico Entertainment, LLC (“Muvico”), Regal Entertainment Group (“Regal”), Consolidated Theatres (“Consolidated”), Rave Motion Pictures (“Rave”), AmStar Cinemas, LLC (“AmStar”) , Wallace Theatres (“Wallace”), Cobb Theatres (“Cobb”), Southern Theatres (“Southern”) and Kerasotes Theatres (“Kerasotes”). At December 31, 2006, approximately 53% of our megaplex theatre properties were leased to AMC.

As of December 31, 2006, our real estate mortgage loan portfolio was comprised of three notes receivable with a total carrying value of $76.1 million, including related accrued interest receivable. As further described in Note 15 to the consolidated financial statements in this Annual Report on Form 10-K, the largest of these loans is denominated in Canadian dollars and had a carrying value of US $60.0 million at December 31, 2006, including accrued interest receivable. This mortgage note bears interest at 15%, and has been provided to a partnership for the purpose of developing a 13 level entertainment retail center in downtown Toronto in Ontario, Canada. It is anticipated that the development of this center will be completed in 2008 at a total cost of approximately $272 million Canadian, and will contain approximately 360,000 square feet of net rentable area (excluding signage). We also have an option to purchase a 50% equity interest in this project.

As further described in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K, during the year ended December 31, 2006, approximately $41.4 million, or 21.2% of our total revenue was derived from our four entertainment retail centers in Ontario, Canada and the mortgage note receivable secured by property in Canada described above. The Canadian entertainment retail centers represent approximately $178.9 million, or 12.8% of our total rental properties at December 31, 2006, and combined with the carrying value of our mortgage note receivable, represent approximately $238.9 million or 15.2% of our total assets at December 31, 2006.

For a discussion of material property acquisitions during the year ended December 31, 2006, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments.”

We aggregate the financial information of all our properties into one reportable segment because the properties have similar economic characteristics and generally provide similar services to similar types and classes of customers.

We believe destination entertainment, entertainment-related, recreational and specialty properties are important sectors of the real estate industry and that, as a result of our focus on properties in these sectors and the industry relationships of our management, we have a competitive advantage in providing capital to operators of these types of properties. Our principal business objective is to be the nation’s leading destination entertainment, entertainment-related, recreation and specialty real estate company by continuing to develop, acquire or finance high-quality properties leased to tenants, generally under long-term triple-net leases that require the tenant to pay substantially all expenses associated with the operation and maintenance of the property.

Megaplex Theatres

A significant portion of our assets consist of megaplex theatres. Megaplex theatres typically have at least 10 screens with stadium-style seating (seating with elevation between rows to provide unobstructed viewing) and are equipped with amenities that significantly enhance the audio and visual experience of the patron. We believe the development of new generation megaplex theatres, including the introduction of digital cinema, has accelerated the obsolescence of many of the previous generation of multiplex 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, enhanced quality of visual presentation and superior customer service typical of megaplex theatres.

We expect the development of megaplex theatres to continue in the United States and abroad for the foreseeable future. With the development of the stadium style megaplex theatre as the preeminent format for cinema exhibition, the older generation of smaller flat-floor theatres has generally experienced a significant downturn in attendance and performance. As a result of the significant capital commitment involved in building megaplex theatres and the experience and industry relationships of our management, we believe we will continue to have opportunities to provide capital to businesses that seek to develop and operate these properties, but would prefer to lease rather than own the properties. We believe our ability to finance these properties will enable us to continue to grow our asset base (See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of capital requirements necessary for the Company’s continued growth).

Entertainment Retail Centers

We continue to seek opportunities for the development of additional restaurant, retail and other entertainment venues around our existing portfolio and our properties under development. The opportunity to capitalize on the traffic generation of our market-dominant theatres to create entertainment retail centers (“ERC’s”) not only strengthens the execution of the megaplex movie theatre but adds diversity to our tenant and asset base. We have and will continue to evaluate our existing portfolio and construction projects for additional development of retail and entertainment density, and we will also continue to evaluate the purchase or financing of existing ERC’s that have demonstrated strong financial performance and meet our quality standards. The leasing and property management requirements of our ERC’s are generally met through the use of third-party professional service providers.

Recreational and Specialty Properties

The venue replacement cycle in theatrical exhibition represents what we consider an inflection opportunity, a demand for new capital stimulated by a need to upgrade to new technologies and related amenities. We expect other destination retail, recreational and specialty properties to undergo similar transformations stimulated by growth, renewal and/or restructuring. We have begun and expect to

continue to pursue acquiring, developing and financing new generations of attractive and successful properties in selected niche markets of out-of-home activity. We believe our ability to invest in these properties will enable us to continue to grow and diversify our asset base.

Business Objectives and Strategies

Our primary business objective is to continue to enhance shareholder value by achieving predictable and increasing Funds From Operations (“FFO”) per Share (See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations” for a discussion of FFO), through the acquisition, development and financing of high-quality properties leased primarily to entertainment and entertainment-related business operators. We intend to achieve this objective by continuing to execute the Growth Strategies, Operating Strategies and Capitalization Strategies described below:

Growth Strategies

As a part of our growth strategy, we will consider developing or acquiring additional megaplex theatre properties, and developing or acquiring single-tenant entertainment, entertainment-related, recreational or specialty properties. We will also consider developing or acquiring additional ERC’s. In lieu of acquisition or development, we may also pursue opportunities to provide mortgage financing for these same property types.

Our investing strategy centers on certain guiding principles:

Inflection Opportunity

We look for a new generation of facilities emerging as a result of age, technology, or change in the lifestyle of consumers which create development, renewal or restructuring opportunities requiring significant capital.

Enduring Value

We look for real estate that supports activities that are commercially successful and have a reasonable basis for continued and sustainable customer demand in the future. Further, we seek circumstances where the magnitude of change in the new generation of facilities adds substantially to the customer experience.

Excellent Execution

We seek attractive locations and best-of-class executions that create market-dominant properties which we believe create a competitive advantage and enhance sustainable customer demand within the category despite a potential change in tenant. We minimize the potential for turnover by seeking quality tenants with a reliable track record of customer service and satisfaction.

Attractive Economics

We seek investments that provide accretive returns initially and increasing returns over time with rent escalators and percentage rent features that allow participation in the financial performance of the property. Further, we are interested in investments that provide a depth of opportunity to invest sufficient capital to be meaningful to our total financial results and also provide a diversity by market, geography or tenant operator.

Advantageous Position

In combination with the preceding principles, when investing we look for a competitive advantage such as unique knowledge of the category, access to industry information, a preferred tenant relationship, or other relationships that provide access to sites and development projects.

Operating Strategies

Lease Risk Minimization

To avoid initial lease-up risks and produce a predictable income stream, we typically acquire single-tenant properties that are leased under long-term leases. We believe our willingness to make long-term investments in properties offers our tenants financial flexibility and allows tenants to allocate capital to their core businesses. Although we will continue to emphasize single-tenant properties, we have acquired and may continue to acquire multi-tenant properties we believe add value to our shareholders.

Lease Structure

We have structured our property acquisitions and leasing arrangements to achieve a positive spread between our cost of capital and the rentals paid by our tenants. We typically structure leases on a triple-net basis under which the tenants bear the principal portion of the financial and operational responsibility for the properties. During each lease term and any renewal periods, the leases typically provide for periodic increases in rent and/or percentage rent based upon a percentage of the tenant’s gross sales over a pre-determined level. In our multi-tenant property leases and some of our theatre leases, we generally require the tenant to pay a common area maintenance (CAM) charge to defray its pro rata share of insurance, taxes and maintenance costs.

Tenant Relationships

We intend to continue developing and maintaining long-term working relationships with theatre, restaurant, retail, entertainment, recreation and specialty business operators and developers by providing capital for multiple properties on an international, national or regional basis, thereby enhancing efficiency and value to those operators and to the Company.

Portfolio Diversification

We will endeavor to further diversify our asset base by property type, geographic location and tenant. In pursuing this diversification strategy, we will target theatre, restaurant, retail, recreation and other entertainment-related business operators which management views as leaders in their market segments and which management believes have the financial strength to compete effectively and perform under their leases with the Company. We may also consider the acquisition of other specialty properties if management believes such properties would add value to our shareholders.

Development

We intend to continue developing properties that meet our guiding principles. We generally do not begin development of a single tenant property without a signed lease providing for rental payments during the development period that are commensurate with our level of capital investment. In the case of a multi-tenant development, we generally require a significant amount of the development to be pre-leased prior to construction to minimize lease-up risk. In addition, to minimize overhead costs and to provide the greatest amount of flexibility, we generally outsource construction management to a third party engineering firm.

Capitalization Strategies

Debt and Equity Financing

We finance the acquisition of properties with a combination of debt and preferred and common equity financing. We expect to maintain a debt to total capitalization ratio (i.e., long-term debt of the Company as a percentage of shareholders’ equity plus total liabilities) of between 50% and 55%. However, the timing and size of our equity offerings may cause us to temporarily operate outside of this range.

On January 31, 2006, we amended and restated our secured revolving credit facility to increase the size of the facility to $200 million from $150 million, extend its term, improve the pricing and convert from a secured to an unsecured facility. On June 6, 2006, we increased the size of the facility to $235 million with no other material modifications to the terms and conditions.

The amended facility (referred to in this report as the “unsecured revolving credit facility”) carries an interest rate ranging from LIBOR plus 130 to 175 basis points, compared to LIBOR plus 175 to 250 basis points previously paid. The unsecured revolving credit facility has a three year term expiring in 2009 with a one-year extension available at our option.

See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments” for other debt and equity transactions during 2006.

Joint Ventures

We will examine and may pursue potential additional joint venture opportunities with institutional investors or developers if the investments to which they relate meet our guiding principles discussed above. We may employ higher leverage in joint ventures.

Payment of Regular Distributions

We have paid and expect to continue to pay quarterly dividend distributions to our common and preferred shareholders. Our Series A cumulative redeemable preferred shares (“Series A preferred shares”) have a dividend rate of 9.50%, our Series B cumulative redeemable preferred shares (“Series B preferred shares”) have a dividend rate of 7.75% and our Series C cumulative convertible preferred shares (“Series C preferred shares”) have a dividend rate of 5.75%. Among the factors the Company’s board of trustees (“Board of Trustees”) considers in setting the common share distribution rate are the applicable REIT tax rules and regulations that apply to distributions, the Company’s results of operations, including FFO per share, and the Company’s Cash Available for Distribution (defined as net cash flow available for distribution after payment of operating expenses, debt service, and other obligations). We expect to periodically increase distributions on our common shares as FFO and Cash Available for Distribution increase and as other considerations and factors warrant.

Competition

We compete for real estate financing opportunities with other companies that invest in real estate, as well as traditional financial sources such as banks and insurance companies. While we were the first publicly traded REIT formed to specialize in entertainment and entertainment-related properties, other REITs have financed and may continue to seek to finance entertainment properties as new properties are developed or become available for acquisition.

Employees

As of December 31, 2006, we had thirteen full time employees.

Principal Executive Offices

The Company’s principal executive offices are located at 30 W. Pershing Road, Suite 201, Kansas City, Missouri 64108; telephone (816) 472-1700.

Materials Available on Our Website

Our internet website address is www.eprkc.com. We make available, free of charge, through our website copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to the Securities and Exchange Commission (the “Commission” or “SEC”). You may also view our Code of Business Conduct and Ethics, Company Governance Guidelines, Independence Standards for Trustees and the charters of our audit, nominating/company governance and compensation committees on our website. Copies of these documents are also available in print to any shareholder who requests them.

Item 1A. Risk Factors

There are many risks and uncertainties that can affect our current or future business, financial performance or share price. Here is a brief description of some of the important factors which could adversely affect our current or future business, operating results, financial condition or share price. This discussion includes a number of forward-looking statements. See “Forward Looking Statements.”

Risks That May Impact Our Financial Condition or Performance

We depend on leasing space to tenants on economically favorable terms and collecting rent from our tenants, who may not be able to pay

Our financial results depend significantly on leasing space at our properties to tenants on economically favorable terms. In addition, because a substantial majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to our shareholders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain our levels of occupancy on favorable terms. If a tenant does not pay its rent, we might not be able to enforce our rights as landlord without delays and might incur substantial legal costs.

If a tenant becomes bankrupt or insolvent, that could diminish or eliminate the income we expect from that tenant’s leases. We may not be able to evict a tenant solely because of its bankruptcy. On the other hand, a bankruptcy court might authorize the tenant to terminate its leases with us. If that happens, our claim against the bankrupt tenant for unpaid future rent would be subject to statutory limitations that might be substantially less than the remaining rent owed under the leases. In addition, any claim we have for unpaid past rent would likely not be paid in full and we would also have to take a charge against earnings for any accrued straight-line rent receivable related to the leases.

We could be adversely affected by a mortgagor’s bankruptcy or default

If a mortgagor becomes bankrupt or insolvent or defaults under its mortgage, that could force us to declare a default and foreclose on the underlying property. There is a risk that the fair value of the property will be less than the carrying value of the property’s debt at the time of the foreclosure and we may have to take a charge against earnings. We may experience costs and delays in recovering a property in foreclosure or finding a substitute operator for the property. If the mortgage we hold is subordinated to senior financing secured by the property, our recovery would be limited to any amount remaining after satisfaction of all amounts due to the holder of the senior financing. We have agreed to subordinate our Canadian mortgage financing to bank construction financing obtained by the borrower.

Our theatre tenants may be adversely affected by the obsolescence of any older multiplex theatres they own or by any overbuilding of megaplex theatres in their markets

The development of megaplex movie theatres has rendered many older multiplex theatres obsolete. To the extent our tenants own a substantial number of multiplexes, they have been, or may in the future be, required to take significant charges against their earnings resulting from the impairment of these assets. Megaplex theatre operators have also been and could in the future be adversely affected by any overbuilding of megaplex theatres in their markets and the cost of financing, building and leasing megaplex theatres.

Operating risks in the entertainment industry may affect the ability of our tenants to perform under their leases

The ability of our tenants to operate successfully in the entertainment industry and remain current on their lease obligations depends on a number of factors, including the availability and popularity of motion pictures, the performance of those pictures in tenants’ markets, the allocation of popular pictures to tenants and the terms on which the pictures are licensed. Neither we nor our tenants control the operations of motion picture distributors. Megaplex theatres represent a greater capital investment, and generate higher rents, than the previous generation of multiplex theatres. For this reason, the ability of our tenants to operate profitably and perform under their leases could be dependent on their ability to generate higher revenues per screen than multiplex theatres typically produce. The success of “out-of-home” entertainment venues such as megaplex theatres, entertainment retail centers and recreational properties also depends on general economic conditions and the willingness of consumers to spend time and money on out-of-home entertainment.

Real estate is a competitive business

Our business operates in highly competitive environments. We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rent charged, attractiveness of location, the quality of the property and breadth and quality of services provided. Our success depends upon, among other factors, trends of the national and local economies, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.

A single tenant represents a substantial portion of our lease revenues

Approximately 53% of our megaplex theatre properties are leased to AMC, one of the nation’s largest movie exhibition companies. AMCE has guaranteed AMC’s performance under substantially all of their leases. We have diversified and expect to continue to diversify our real estate portfolio by entering into lease transactions with a number of other leading operators. Nevertheless, our revenues and our continuing ability to pay shareholder dividends are currently substantially dependent on AMC’s performance under its leases and AMCE’s performance under its guaranty.

We believe AMC occupies a strong position in the industry and we intend to continue acquiring and leasing back or developing new AMC theatres. However, if for any reason AMC failed to perform under its lease obligations and AMCE did not perform under its guaranty, we could be required to reduce or suspend our shareholder dividends and may not have sufficient funds to support operations until substitute tenants are obtained. If that happened, we cannot predict when or whether we could obtain substitute quality tenants on acceptable terms.

There are risks inherent in having indebtedness and the use of such indebtedness to fund acquisitions

We currently utilize debt to fund portions of our operations and acquisitions. In a rising interest rate environment, the cost of our variable rate debt and any new debt or other market rate security or instrument may increase. We have used leverage to acquire properties and expect to continue to do so in

the future. Although the use of leverage is common in the real estate industry, our use of debt to acquire properties does expose us to some risks. If a significant number of our tenants fail to make their lease payments and we don’t have sufficient cash to pay principal and interest on the debt, we could default on our debt obligations. A substantial amount of our debt financing is secured by mortgages on our properties. If we fail to meet our mortgage payments, the lenders could declare a default and foreclose on those properties. Our unsecured revolving credit facility has a variable interest rate that also exposes us to the risk of higher interest rates on amounts borrowed under that facility. If the tenants of properties in the borrowing base for our unsecured revolving credit facility default on their lease obligations or the properties otherwise fail to qualify for inclusion in the borrowing base, that could limit the amount we could borrow under the facility.

A portion of our secured debt has a “hyper-amortization” provision which may require us to refinance the debt or sell the properties securing the debt prior to maturity

As of December 31, 2006, we had approximately $93.0 million outstanding under a single secured mortgage loan agreement that contains a “hyper-amortization” feature, in which the principal payment schedule is rapidly accelerated, and our principal payments are substantially increased, if we fail to pay the balance on the anticipated prepayment date of July 11, 2008. We undertook this debt on the assumption that we will be able to refinance the debt prior to these hyper-amortization payments becoming due. If we cannot obtain acceptable refinancing at the appropriate time, the hyper-amortization payments will require substantially all of the revenues from those properties securing the debt to be applied to the debt repayment, which could reduce our common share dividend rate and could adversely affect our financial condition and liquidity.

We have grown rapidly through acquisitions. We may not be able to maintain this rapid growth and our failure to do so could adversely affect our stock price

We have experienced rapid growth in recent years. We may not be able to maintain a similar rate of growth in the future or manage our growth effectively. Our failure to do so may have a material adverse effect on our financial condition and results of operations and ability to pay dividends to our shareholders.

We must obtain new financing in order to grow

As a REIT, we are required to distribute at least 90% of our taxable net income to shareholders in the form of dividends. This means we are limited in our ability to use internal capital to acquire properties and must continually raise new capital in order to continue to grow and diversify our real estate portfolio. Our ability to raise new capital depends in part on factors beyond our control, including conditions in equity and credit markets, conditions in the industries in which our tenants are engaged and the performance of real estate investment trusts generally. We continually consider and evaluate a variety of potential transactions to raise additional capital, but we cannot assure that attractive alternatives will always be available to us, nor that our share price will increase or remain at a level that will permit us to continue to raise equity capital publicly or privately.

Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured revolving credit facility and other loans that we may obtain in the future contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow under our credit facilities is subject to compliance with certain financial and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we

may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us, or be available only on unattractive terms. Additionally, our ability to satisfy current or prospective lenders’ insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage against acts of terrorism than is available to us in the marketplace or on commercially reasonable terms.

We rely on debt financing, including borrowings under our unsecured revolving credit facility and debt secured by individual properties, to finance our acquisition and development activities and for working capital. If we are unable to obtain debt financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. If we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, can take possession of the property securing the defaulted loan.

We may acquire or develop properties or acquire other real estate related companies and this may create risks

We may acquire or develop properties or acquire other real estate related companies when we believe that an acquisition or development is consistent with our business strategies. We may not, however, succeed in consummating desired acquisitions or in completing developments on time. In addition, we may face competition in pursuing acquisition or development opportunities that could increase our costs. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention. Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may expose us to unanticipated risks in those markets and industries to which we are unable to effectively respond and, as a result, our performance in those new markets and industries and overall may be poorer than anticipated. We may also abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated. Furthermore, our acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we may not be aware at the time of acquisition. In addition, development of our existing properties presents similar risks.

Our real estate investments are concentrated in entertainment, entertainment-related and recreational properties and a significant portion of those investments are in megaplex theatre properties, making us more vulnerable economically than if our investments were diversified

We primarily acquire, develop or finance entertainment, entertainment-related and recreational properties. A significant portion of our investments are in megaplex theatre properties. Although we are subject to the general risks inherent in concentrating investments in real estate, the risks resulting from a lack of diversification become even greater as a result of our business strategy to invest primarily in entertainment, entertainment-related and recreational properties. These risks are further heightened by the fact that a significant portion of our investments are in megaplex theatre properties. Although a downturn in the real estate industry could significantly adversely affect the value of our properties, a downturn in the entertainment, entertainment-related and recreational industries could compound this adverse affect. These adverse effects could be more pronounced than if we diversified our investments outside of entertainment, entertainment-related and recreational properties or, more particularly, outside of megaplex theater properties.

If we fail to qualify as a REIT, we would be taxed as a corporation, which would substantially reduce funds available for payment of dividends to our shareholders

If we fail to qualify as a REIT for federal income tax purposes, we will be taxed as a corporation. We are organized and believe we qualify as a REIT, and intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex

provisions of the Internal Revenue Code on which there are only limited judicial and administrative interpretations, and depends on facts and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws, the application of the tax laws to our qualification as a REIT or the federal income tax consequences of that qualification.

If we fail to qualify as a REIT we will face tax consequences that will substantially reduce the funds available for payment of dividends:

	•		We would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to federal income tax at regular corporate rates
	•		We could be subject to the federal alternative minimum tax and possibly increased state and local taxes
	•		Unless we are entitled to relief under statutory provisions, we could not elect to be treated as a REIT for four taxable years following the year in which we were disqualified
	•		We could be subject to tax penalties and interest

In addition, if we fail to qualify as a REIT, we will no longer be required to pay dividends. As a result of these factors, our failure to qualify as a REIT could adversely affect the market price for our shares.

We depend on dividends and distributions from our direct and indirect subsidiaries. The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to us

Substantially all of our assets are held through our subsidiaries. We depend on these subsidiaries for substantially all of our cash flow. The creditors of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders. Thus, our ability to make distributions to holders of our common and preferred shares depends on our subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to us.

Our development financing arrangements expose us to funding and purchase risks

Our ability to meet our construction financing obligations which we have undertaken or may enter into in the future depends on our ability to obtain equity or debt financing in the required amounts. There is no assurance we can obtain this financing or that the financing rates available will ensure a spread between our cost of capital and the rent payable to us under the related leases (See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity Requirements”).

We have a limited number of employees and loss of personnel could harm our operations and adversely affect the value of our common shares

We currently have 13 full-time employees and, therefore, the impact we may feel from the loss of an employee may be greater than the impact such a loss would have on a larger organization. We are dependent on the efforts of the following individuals: David M. Brain, our President and Chief Executive Officer; Gregory K. Silvers, our Vice President, Chief Operating Officer, General Counsel and Secretary; Mark A. Peterson, our Vice President and Chief Financial Officer; and Michael L. Hirons, our Vice President — Finance. While we believe that we could find replacements for our personnel, the loss of their services could harm our operations and adversely affect the value of our common shares.

Risks That Apply to our Real Estate Business

Real estate income and the value of real estate investments fluctuate due to various factors

The value of real estate fluctuates depending on conditions in the general economy and the real estate business. These conditions may also limit our revenues and available cash.

The factors that affect the value of our real estate include, among other things:

	•		international, national, regional and local economic conditions;
	•		consequences of any armed conflict involving, or terrorist attack against, the United States;
	•		our ability to secure adequate insurance;
	•		local conditions such as an oversupply of space or a reduction in demand for real estate in the area;
	•		competition from other available space;
	•		whether tenants and users such as customers of our tenants consider a property attractive;
	•		the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
	•		whether we are able to pass some or all of any increased operating costs through to tenants;
	•		how well we manage our properties;
	•		fluctuations in interest rates;
	•		changes in real estate taxes and other expenses;
	•		changes in market rental rates;
	•		the timing and costs associated with property improvements and rentals;
	•		changes in taxation or zoning laws;
	•		government regulation;
	•		our failure to continue to qualify as a real estate investment trust;
	•		availability of financing on acceptable terms or at all;
	•		potential liability under environmental or other laws or regulations; and
	•		general competitive factors.

The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors. If our rental revenues decline, we generally would expect to have less cash available to pay our indebtedness and distribute to our shareholders. In addition, some of our unreimbursed costs of owning real estate may not decline when the related rents decline.

There are risks associated with owning and leasing real estate

Although our lease terms obligate the tenants to bear substantially all of the costs of operating the properties, investing in real estate involves a number of risks, including:

	•		The risk that tenants will not perform under their leases, reducing our income from the leases or requiring us to assume the cost of performing obligations (such as taxes, insurance and maintenance) that are the tenant’s responsibility under the lease
	•		The risk that changes in economic conditions or real estate markets may adversely affect the value of our properties
	•		The risk that local conditions could adversely affect the value of our properties
	•		We may not always be able to lease properties at favorable rates
	•		We may not always be able to sell a property when we desire to do so at a favorable price
	•		Changes in tax, zoning or other laws could make properties less attractive or less profitable

If a tenant fails to perform on its lease covenants, that would not excuse us from meeting any debt obligation secured by the property and could require us to fund reserves in favor of our lenders, thereby

reducing funds available for payment of dividends. We cannot be assured that tenants will elect to renew their leases when the terms expire. If a tenant does not renew its lease or if a tenant defaults on its lease obligations, there is no assurance we could obtain a substitute tenant on acceptable terms. If we cannot obtain another quality movie exhibitor to lease a megaplex theatre property, we may be required to modify the property for a different use, which may involve a significant capital expenditure and a delay in re-leasing the property.

Some potential losses are not covered by insurance

Our leases require the tenants to carry comprehensive liability, casualty, workers’ compensation, extended coverage and rental loss insurance on our properties. We believe the required coverage is of the type, and amount, customarily obtained by an owner of similar properties. We believe all of our properties are adequately insured. However, there are some types of losses, such as catastrophic acts of nature, for which we or our tenants cannot obtain insurance at an acceptable cost. If there is an uninsured loss or a loss in excess of insurance limits, we could lose both the revenues generated by the affected property and the capital we have invested in the property. We would, however, remain obligated to repay any mortgage indebtedness or other obligations related to the property. Since September 11, 2001, the cost of insurance protection against terrorist acts has risen dramatically. There can be no assurance our tenants will be able to obtain terrorism insurance coverage, or that any coverage they do obtain will adequately protect our properties against loss from terrorist attack.

Joint ventures may limit flexibility with jointly owned investments

We may continue to acquire or develop properties in joint ventures with third parties when those transactions appear desirable. We would not own the entire interest in any property acquired by a joint venture. Major decisions regarding a joint venture property may require the consent of our partner. If we have a dispute with a joint venture partner, we may feel it necessary or become obligated to acquire the partner’s interest in the venture. However, we cannot ensure that the price we would have to pay or the timing of the acquisition would be favorable to us. If we own less than a 50% interest in any joint venture, or if the venture is jointly controlled, the assets and financial results of the joint venture may not be reportable by us on a consolidated basis. To the extent we have commitments to, or on behalf of, or are dependent on, any such “off-balance sheet” arrangements, or if those arrangements or their properties or leases are subject to material contingencies, our liquidity, financial condition and operating results could be adversely affected by those commitments or off-balance sheet arrangements.

Our multi-tenant properties expose us to additional risks

Our entertainment retail centers in Westminster, Colorado, New Rochelle, New York, Burbank, California and Ontario, Canada, and similar properties we may seek to acquire or develop in the future, involve risks not typically encountered in the purchase and lease-back of megaplex theatres which are operated by a single tenant. The ownership or development of multi-tenant retail centers could expose us to the risk that a sufficient number of suitable tenants may not be found to enable the center to operate profitably and provide a return to us. Retail centers are also subject to tenant turnover and fluctuations in occupancy rates, which could affect our operating results. Multi-tenant retail centers also expose us to the risk of potential “CAM slippage,” which may occur when CAM fees paid by tenants are exceeded by the actual cost of taxes, insurance and maintenance at the property.

Failure to comply with the Americans with Disabilities Act and other laws could result in substantial costs

Our theatres must comply with the Americans with Disabilities Act (ADA). The ADA requires that public accommodations reasonably accommodate individuals with disabilities and that new construction or alterations be made to commercial facilities to conform to accessibility guidelines. Failure to comply with the ADA can result in injunctions, fines, damage awards to private parties and additional capital expenditures to remedy noncompliance. Our leases require the tenants to comply with the ADA.

Rulings in lawsuits brought by the United States Department of Justice have found AMC, our most significant tenant, to be in violation of certain provisions of the ADA. AMC has advised us it estimates that it will cost approximately $63 million over the next five years to remedy these conditions. A portion of the rulings is being appealed by AMC. Regardless of the outcome of such appeal, the cost of remediation is the responsibility of AMC.

Our properties are also subject to various other federal, state and local regulatory requirements. With the exception of the ADA issues discussed above, we believe our properties are in material compliance with all applicable regulatory requirements. However, we do not know whether existing requirements will change or whether compliance with future requirements will involve significant unanticipated expenditures. Although these expenditures would be the responsibility of our tenants, if tenants fail to perform these obligations, we may be required to do so.

Potential liability for environmental contamination could result in substantial costs

Under federal, state and local environmental laws, we may be required to investigate and clean up any release of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or actual responsibility, simply because of our current or past ownership of the real estate. If unidentified environmental problems arise, we may have to make substantial payments, which could adversely affect our cash flow and our ability to make distributions to our shareholders. This is so because:

	•		As owner we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination
	•		The law may impose clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination
	•		Even if more than one person is responsible for the contamination, each person who shares legal liability under environmental laws may be held responsible for all of the clean-up costs
	•		Governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs

These costs could be substantial and in extreme cases could exceed the value of the contaminated property. The presence of hazardous substances or petroleum products or the failure to properly remediate contamination may adversely affect our ability to borrow against, sell or lease an affected property. In addition, some environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination. Most of our loan agreements require the Company or a subsidiary to indemnify the lender against environmental liabilities. Our leases require the tenants to operate the properties in compliance with environmental laws and to indemnify us against environmental liability arising from the operation of the properties. We believe all of our properties are in material compliance with environmental laws. However, we could be subject to strict liability under environmental laws because we own the properties. There is also a risk that tenants may not satisfy their environmental compliance and indemnification obligations under the leases. Any of these events could substantially increase our cost of operations, require us to fund environmental indemnities in favor of our lenders, limit the amount we could borrow under our unsecured revolving credit facility, and reduce our ability to service our debt and pay dividends to shareholders.

Real estate investments are relatively non-liquid

We may desire to sell a property in the future because of changes in market conditions, poor tenant performance or default of any mortgage we hold, or to avail ourselves of other opportunities. We may also be required to sell a property in the future to meet debt obligations or avoid a default. Specialty real estate projects such as megaplex theatres cannot always be sold quickly, and we cannot assure you that we could always obtain a favorable price. We may be required to invest in the restoration or modification of a property before we can sell it.

There are risks in owning assets outside the United States

Our properties in Canada and the property securing our Canadian mortgage financing are subject to the risks normally associated with international operations. The rentals under our Canadian leases, the debt service on our Canadian mortgage financing and the payments to be received on our Canadian mortgage receivable are payable or collectible (as applicable) in Canadian dollars, which could expose us to losses resulting from fluctuations in exchange rates to the extent we have not hedged our position. Canadian real estate and tax laws are complex and subject to change, and we cannot assure you we will always be in compliance with those laws or that compliance will not expose us to additional expense. We may also be subject to fluctuations in Canadian real estate values or markets or the Canadian economy as a whole, which may adversely affect our Canadian investments.

There are risks in owning or financing properties for which the tenant’s or mortgagor’s operations may be impacted by weather conditions

We have acquired and financed ski resorts and may continue to do so in the future. The operator of these properties, our tenant or mortgagor, is dependent upon the operation of its ski resorts to pay its rents and service its loans. The ski resort operator’s ability to attract visitors is influenced by weather conditions and the amount of snowfall during the ski season. Adverse weather conditions may discourage visitors from participating in outdoor activities. In addition, unseasonably warm weather may result in inadequate natural snowfall, which increases the cost of snowmaking, and could render snowmaking wholly or partially ineffective in maintaining quality skiing conditions. Excessive natural snowfall may materially increase the costs incurred for grooming trails and may also make it difficult for visitors to obtain access to the ski resorts. Prolonged periods of adverse weather conditions, or the occurrence of such conditions during peak visitation periods, could have a material adverse effect on the operator’s financial results and could impair the ability of the operator to make rental payments or service our loans.

Risks That May Affect the Market Price of our Shares

We cannot assure you we will continue paying dividends at historical rates

Our ability to continue paying dividends on our common shares at historical rates, to pay dividends on our preferred shares at their stated rates or to increase our common share dividend rate will depend on a number of factors, including our financial condition and results of future operations, the performance of lease terms by tenants, our ability to acquire, finance and lease additional properties at attractive rates, and provisions in our loan covenants. If we do not maintain or increase our common share dividend rate, that could have an adverse effect on the market price of our common shares and possibly our preferred shares.

Market interest rates may have an effect on the value of our shares

One of the factors that investors may consider in deciding whether to buy or sell our common shares or preferred shares is our dividend rate as a percentage of our share price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher dividend on our common shares or seek securities paying higher dividends or interest.

Market prices for our shares may be affected by perceptions about the financial health or share value of our tenants or the performance of REIT stocks generally

To the extent any of our tenants or other movie exhibitors report losses or slower earnings growth, take charges against earnings resulting from the obsolescence of multiplex theatres or enter bankruptcy proceedings, the market price for our shares could be adversely affected. The market price for our shares could also be affected by any weakness in movie exhibitor stocks generally. We believe these trends had an adverse impact on our common share price during 2001 and 2000.

Limits on changes in control may discourage takeover attempts which may be beneficial to our shareholders

There are a number of provisions in our Declaration of Trust, Maryland law and agreements we have with others which could make it more difficult for a party to make a tender offer for our shares or complete a takeover of the Company which is not approved by our Board of Trustees. These include:

	•		A staggered Board of Trustees that can be increased in number without shareholder approval
	•		A limit on beneficial ownership of our shares, which acts as a defense against a hostile takeover or acquisition of a significant or controlling interest, in addition to preserving our REIT status
	•		The ability of the Board of Trustees to issue preferred or common shares, to reclassify preferred or common shares, and to increase the amount of our authorized preferred or common shares, without shareholder approval
	•		Limits on the ability of shareholders to remove trustees without cause
	•		Requirements for advance notice of shareholder proposals at annual shareholder meetings
	•		Provisions of Maryland law restricting business combinations and control share acquisitions not approved by the Board of Trustees
	•		Provisions of Maryland law protecting corporations (and by extension REITs) against unsolicited takeovers by limiting the duties of the trustees in unsolicited takeover situations
	•		Provisions in Maryland law providing that the trustees are not subject to any higher duty or greater scrutiny than that applied to any other director under Maryland law in transactions relating to the acquisition or potential acquisition of control
	•		Provisions of Maryland law creating a statutory presumption that an act of the trustees satisfies the applicable standards of conduct for trustees under Maryland law
	•		Provisions in loan or joint venture agreements putting the Company in default upon a change in control
	•		Provisions of employment agreements with our officers calling for share purchase loan forgiveness (under certain conditions), severance compensation and vesting of equity compensation upon a change in control

Any or all of these provisions could delay or prevent a change in control of the Company, even if the change was in our shareholders’ interest or offered a greater return to our shareholders.

We may change our policies without obtaining the approval of our shareholders

Our operating and financial policies, including our policies with respect to acquisitions of real estate or other companies, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Trustees. Accordingly, our shareholders do not control these policies.

Dilution could affect the value of our shares

Our future growth will depend in part on our ability to raise additional capital. If we raise additional capital through the issuance of equity securities, the interests of holders of our common shares could be diluted. Likewise, our Board of Trustees is authorized to cause us to issue preferred shares in one or more series, the holders of which would be entitled to dividends and voting and other rights as our Board of Trustees determines, and which could be senior to or convertible into our common shares. Accordingly, an issuance by us of preferred shares could be dilutive to or otherwise adversely affect the interests of holders of our common shares. Our Series C preferred shares are convertible, at each of the holder’s option, into our common shares at an initial conversion rate of 0.3504 common shares per $25.00 liquidation preference, which is equivalent to an initial conversion price of approximately $71.34 per common share (subject to adjustment in certain events). Depending upon the number of Series C preferred shares being converted at one time, a conversion of Series C preferred shares could be dilutive to or otherwise adversely affect the interests of holders of our common shares.

Changes in foreign currency exchange rates may have an impact on the value of our shares

The functional currency for our Canadian operations and mortgage note receivable is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between U.S. and Canadian dollars, which in turn could affect our share price. We have attempted to mitigate our exposure to Canadian currency exchange risk by having both our Canadian lease rentals and the debt service on our Canadian mortgage financing payable in the same currency. We also from time to time enter into foreign currency exchange contracts to hedge our exposure to exchange rate fluctuations. Foreign currency derivatives are subject to future risk of loss. We do not engage in purchasing foreign exchange contracts for speculative purposes.

Tax reform could adversely affect the value of our shares

There have been a number of proposals in Congress for major revision of the federal income tax laws, including proposals to adopt a flat tax or replace the income tax system with a national sales tax or value-added tax. Any of these proposals, if enacted, could change the federal income tax laws applicable to REITS, subject us to federal tax or reduce or eliminate the current deduction for dividends paid to our shareholders, any of which could negatively affect the market for our shares.

Item 1B. Unresolved Staff Comments

There are no unresolved comments from the staff of the SEC required to be disclosed herein as of the date of this Annual Report on Form 10-K.

Item 2. Properties

As of December 31, 2006, our real estate portfolio consisted of 75 megaplex theatre properties and various restaurant, retail and other properties located in 25 states and Ontario, Canada. Except as otherwise noted, all of the real estate investments listed below are owned or ground leased directly by us. The following table lists our properties, their locations, acquisition dates, number of theatre screens, number of seats, gross square footage, and the tenant.

				Acquisition										Building
Property		Location		date		Screens				Seats				(gross sq. ft)				Tenant
Megaplex Theatre Properties:
Grand 24 (3)		Dallas, TX		11/97			24				5,067				98,175			AMC
Mission Valley 20 (1) (3)		San Diego, CA		11/97			20				4,361				84,352			AMC
Promenade 16 (3)		Los Angeles, CA		11/97			16				2,860				129,822			AMC
Ontario Mills 30 (3)		Los Angeles, CA		11/97			30				5,469				131,534			AMC
Lennox 24 (1) (3)		Columbus, OH		11/97			24				4,412				98,261			AMC
West Olive 16 (3)		St. Louis, MO		11/97			16				2,817				60,418			AMC
Studio 30 (3)		Houston, TX		11/97			30				6,032				136,154			AMC
Huebner Oaks 24 (3)		San Antonio, TX		11/97			24				4,400				96,004			AMC
First Colony 24 (1) (9)		Houston, TX		11/97			24				5,098				107,690			AMC
Oakview 24 (10) (9)		Omaha, NE		11/97			24				5,098				107,402			AMC
Leawood Town Center 20 (9)		Leawood, KS		2/98			20				2,995				75,224			AMC
Gulf Pointe 30 (2) (9)		Houston, TX		3/98			30				6,008				130,891			AMC
South Barrington 30 (9)		Chicago, IL		3/98			30				6,210				130,891			AMC
Cantera 30 (2) (5)		Chicago, IL		4/98			30				6,210				130,757			AMC
Mesquite 30 (2) (9)		Dallas, TX		6/98			30				6,008				130,891			AMC
Hampton Town Center 24 (9)		Norfolk, VA		8/98			24				5,098				107,396			AMC
Raleigh Grand 16 (4)		Raleigh, NC		8/98			16				2,596				51,450			Consolidated
Pompano 18 (4)		Pompano Beach, FL		11/98			18				3,424				73,637			Muvico
Paradise 24 (23)		Davie, FL		12/98			24				4,180				96,497			Muvico
Boise Stadium (1) (4)		Boise, ID		12/98			21				4,734				140,300			Regal
Aliso Veijo Stadium 20 (22)		Los Angeles, CA		12/98			20				4,352				98,557			Regal
Westminster 24 (7)		Westminster, CO		6/99			24				4,812				107,000			AMC
Woodridge 18 (2) (10)		Woodridge, IL		6/99			18				4,384				84,206			AMC
Tampa Starlight 20 (10)		Tampa, FL		1/00			20				3,928				84,000			Muvico
Palm Promenade 24 (10)		San Diego, CA		1/00			24				4,586				88,610			AMC
Cary Crossroads 20 (10)		Cary, NC		3/02			20				3,936				77,475			Consolidated
Elmwood Palace 20 (10)		New Orleans, LA		3/02			20				4,357				90,391			AMC
Hammond Palace 10 (10)		New Orleans, LA		3/02			10				1,531				39,850			AMC
Houma Palace 10 (10)		New Orleans, LA		3/02			10				1,871				44,450			AMC
Westbank Palace 16 (10)		New Orleans, LA		3/02			16				3,176				71,607			AMC
Clearview Palace 12 (1)(10)		New Orleans, LA		3/02			12				2,495				70,000			AMC
Olathe Studio 30 (10)		Olathe, KS		6/02			30				5,731				113,108			AMC
Forum 30 (10)		Sterling Heights, MI		6/02			30				5,041				107,712			AMC
Cherrydale 16 (10)		Greenville, SC		6/02			16				2,744				51,450			Consolidated
Livonia 20 (10)		Detroit, MI		8/02			20				3,808				75,106			AMC
Hoffman Town Centre 22 (1)(10)		Alexandria, VA		10/02			22				4,150				132,903			AMC
Colonel Glenn 18 (4)		Little Rock, AR		12/02			18				4,122				79,330			Rave
AmStar Cinema 16 (17)		Macon, GA		3/03			16				2,950				55,000			AmStar
Subtotal Megpaplex Theatres, carried over to page 21							821				161,051				3,588,501

				Acquisition										Building
Property		Location		date		Screens				Seats				(gross sq. ft)				Tenant
Megaplex Theatre Properties:
Subtotal from page 20		n/a		n/a			821				161,051				3,588,501			n/a
Star Southfield 20 (9)		Southfield, MI		5/03			20				7,000				110,000			AMC
Southwind 12 (9)		Lawrence, KS		6/03			12				2,481				42,497			Wallace
Veterans 24 (11)		Tampa, FL		6/03			24				4,580				94,774			AMC
New Roc City 18 and IMAX (12)		New Rochelle, NY		10/03			18				3,400				103,000			Regal
Harbour View Grande 16 (9)		Suffolk, VA		11/03			16				3,036				61,500			Consolidated
Columbiana Grande 14 (14)		Columbia, SC		11/03			14				3,000				55,400			Consolidated
The Grande 18 (9)		Hialeah, FL		12/03			18				4,900				77,400			Cobb
Mississauga 16 (8)		Toronto, ON		3/04			16				3,856				95,000			AMC
Oakville 24 (8)		Toronto, ON		3/04			24				4,772				89,290			AMC
Whitby 24 (8)		Toronto, ON		3/04			24				4,688				89,290			AMC
Kanata 24 (8)		Ottawa, ON		3/04			24				4,764				89,290			AMC
Mesa Grand 24 (21)		Phoenix, AZ		3/04			24				4,530				94,774			AMC
Deer Valley 30 (4)		Phoenix, AZ		3/04			30				5,877				113,768			AMC
Hamilton 24 (4)		Hamilton, NJ		3/04			24				4,268				95,466			AMC
Grand Prairie 18 (9)		Peoria, IL		7/04			18				4,063				82,330			Rave
Lafayette Grand 16 (1) (18)		Lafayette, LA		7/04			16				2,744				61,579			Southern
Northeast Mall 18 (20)		Hurst, TX		11/04			18				3,886				98,250			Rave
The Grand D’Iberville 14		Biloxi, MS		12/04			14				2,400				48,000			Southern
Avenue 16 (9)		Melbourne, FL		12/04			16				3,600				75,850			Rave
Mayfaire Cinema 16 (15)		Wilmington, NC		2/05			16				3,050				57,338			Consolidated
East Ridge 18 (9)		Chattanooga, TN		3/05			18				4,133				82,330			Rave
Burbank 16 (13)		Burbank, CA		3/05			16				4,232				86,551			AMC
ShowPlace 12 (9)		Indianapolis, IN		6/05			12				2,200				45,700			Kerasotes
The Grand Theatre 14 (9)		Conroe, TX		6/05			14				2,400				45,000			Southern
The Grand Theatre 14 (9)		Hattiesburg, MS		9/05			14				2,200				46,000			Southern
Auburn Stadium 10 (6)		Auburn, CA		12/05			10				1,573				32,185			Regal
Arroyo Grande 10 (2) (19)		Arroyo Grande, CA		12/05			10				1,714				34,500			Regal
Modesto Stadium 10 (16)		Modesto, CA		12/05			10				1,885				38,873			Regal
Manchester Stadium 16 (1)		Fresno, CA		12/05			16				3,860				80,600			Regal
Firewheel 18 (9)		Garland, TX		3/06			18				3,156				72,252			AMC
Columbia 14 (1) (9)		Coumbia, MD		3/06			14				2,512				77,731			AMC
White Oak Village Cinema 14 (9)		Garner, NC		4/06			14				2,626				50,538			Consolidated
Valley Bend 18 (9)		Huntsville, AL		8/06			18				4,150				90,200			Rave
Grand 18 (1) (9)		Winston Salem, NC		7/06			18				3,496				75,605			Southern
Cityplace 14		Kalamazoo, MI		11/06			14				2,770				70,000			Rave
Bayou 15		Pensacola, FL		12/06			15				3,361				74,700			Rave
Grand Theatre 16 (1)		Slidell, LA		12/06			16				2,750				62,300			Southern
Subtotal Megaplex Theatres							1,454				290,964				6,288,362

				Acquisition										Building
Property		Location		date		Screens				Seats				(gross sq. ft)				Tenant
Retail, Restaurant and Other Properties:
Pompano Kmart		Pompano Beach, FL		11/98			—				—				100,990			Kmart
Hooters Restaurant		Pompano Beach, FL		11/98			—				—				6,227			Hooters Restaurant
On-The-Border		Dallas, TX		1/99			—				—				6,683			Brinkers
Texas Roadhouse		Dallas, TX		1/99			—				—				6,400			TX Roadhouse
Westminster Promenade(9)		Westminster, CO		6/99			—				—				133,477			Multi-Tenant
Bennigan’s		Houston, TX		5/00			—				—				6,575			S & A
Bennigan’s		Dallas, TX		5/00			—				—				6,575			S & A
Texas Land & Cattle		Houston, TX		5/00			—				—				7,733			Tx.C.C., Inc.
Roadhouse Grill		Atlanta, GA		8/00			—				—				6,900			Roadhouse Grill
Cherrydale Shops		Greenville, SC		6/02			—				—				10,000			Multi-Tenant
Johnny Carino’s		Dallas, TX		3/03			—				—				6,200			Kona Rest. Group, Inc.
Star Southfield, Center(9)		Southfield, MI		5/03			—				—				48,478			Multi-Tenant
New Roc City(12)		New Rochelle, NY		10/03			—				—				343,809			Multi-Tenant
Harbour View Station(9)		Suffolk, SC		11/03			—				—				21,416			Multi-Tenant
Whitby Entertainment Centrum(8)		Toronto, ON		3/04			—				—				124,260			Multi-Tenant
Oakville Entertainment Centrum(8)		Toronto, ON		3/04			—				—				118,240			Multi-Tenant
Mississauga Entertainment Centrum(8)		Toronto, ON		3/04			—				—				138,657			Multi-Tenant
Kanata Entertainment Centrum(8)		Ottawa, ON		3/04			—				—				296,512			Multi-Tenant
Vland		Chicago, IL		7/04			—				—				7,500			Vland Warrenville
Stir Crazy		Chicago, IL		9/04			—				—				6,500			Stir Crazy Café
Burbank Village (13)		Burbank, CA		3/05			—				—				35,693			Multi-Tenant
Asahi Sushi Bar		Houston, TX		8/05			—				—				9,000			EBI International, Inc.
Sizzler		Arroyo Grande, CA		12/05			—				—				5,850			Arroyo Grande Sizzler, Inc.
Mad River Mountain (24)		Bellefontaine, OH		11/05			—				—				48,427			Mad River Mountain, Inc.
Havens Wine Cellars (25)		Napa Valley, CA		12/06			—				—				11,960			Billington Imports, Inc.
Subtotal Retail, Restaurant and Other Properties							—				—				1,514,062
Total							1,454				290,964				7,802,424

As of December 31, 2006, our portfolio of megaplex theatre properties consisted of 6.3 million square feet and was 100% occupied, and our portfolio of retail, restaurant and other properties consisted of 1.5 million square feet and was 95% occupied. The combined portfolio consisted of 7.8 million square feet and was 99% occupied. For the year ended December 31, 2006, approximately 84% of our rental revenue (excluding the lease termination fees) was derived from theatre tenants. The following table sets forth information regarding EPR’s megaplex theatre portfolio as of December 31, 2006 (dollars in thousands). This data does not include the two megaplex theatre properties held by our unconsolidated joint ventures.

Megaplex Theatre Portfolio
						Rental Revenue
		Total				for the Year
		Number of				Ended
		Leases				December 31,				% of Rental
Year		Expiring				2006				Revenue
2007			—			$	—				—
2008			—				—				—
2009			—				—				—
2010			8				19,892				14.4	%
2011			—				—				—
2012			3				6,292				4.6	%
2013			4				13,569				9.9	%
2014			—				—				—
2015			—				—				—
2016			2				3,942				2.9	%
2017			3				4,891				3.6	%
2018			5				11,627				8.4	%
2019			7				19,324				14.0	%
2020			7				7,929				5.8	%
2021			3				5,500				4.0	%
2022			9				14,506				10.5	%
2023			2				1,987				1.4	%
2024			8				13,265				9.6	%
2025			7				11,534				8.4	%
2026			5				3,435				2.5	%
			73			$	137,693				100.0	%

Our properties are located in 25 states and in the Canadian province of Ontario. The following table sets forth certain state-by-state and Ontario, Canada information regarding our real estate portfolio as of December 31, 2006 (dollars in thousands). This data does not include the two theatre properties held by our unconsolidated joint ventures.

						Rental Revenue
						for the year
						ended
		Building				December 31,				% of Rental
Location		(gross sq. ft)				2006				Revenue
Ontario, Canada			950,731			$	23,562				14.1	%
California			858,650				22,254				13.3	%
Texas			962,837				21,851				13.0	%
Florida			568,224				14,113				8.4	%
New York			447,000				9,662				5.8	%
Michigan			408,018				9,500				5.7	%
Louisiana			440,177				8,554				5.1	%
Illinois			311,427				8,170				4.9	%
Virginia			301,799				7,429				4.4	%
North Carolina			312,406				5,888				3.5	%
Colorado			247,000				5,088				3.0	%
Kansas			230,829				4,799				2.9	%
Arizona			208,542				3,914				2.3	%
Ohio			146,688				2,633				1.6	%
Nebraska			107,402				2,620				1.6	%
New Jersey			95,466				2,185				1.3	%
Missouri			60,418				2,176				1.3	%
South Carolina			138,705				2,126				1.3	%
Mississippi			94,000				2,117				1.3	%
Idaho			140,300				1,892				1.1	%
Arkansas			79,330				1,663				1.0	%
Tennessee			82,330				1,633				1.0	%
Georgia			61,850				1,288				0.8	%
Alabama			90,200				966				0.6	%
Maryland			77,731				947				0.6	%
Indiana			45,700				663				0.4	%
			7,467,760			$	167,694				100.0	%

Office Location. Our executive office is located in Kansas City, Missouri and is leased from a third party landlord. The office occupies approximately 10,960 square feet with annual rentals of $209,000 and includes annual fixed rent escalations of $.50 per square foot. The lease expires in December, 2009.

Tenants and Leases

Our existing leases on rental property (on a consolidated basis — excluding unconsolidated joint venture properties) provide for aggregate annual rentals of approximately $165 million (not including periodic rent escalations or percentage rent). The megaplex theatre leases have an average remaining base term lease life of approximately 13 years and may be extended for predetermined extension terms at the option of the tenant. The theatre leases are typically triple-net leases that require the tenant to pay substantially all expenses associated with the operation of the properties, including taxes, other governmental charges, insurance, utilities, service, maintenance and any ground lease payments.

Property Acquisitions in 2006

The following table lists the significant rental properties we acquired or developed during 2006:

						Development Cost/
Property		Location		Tenant		Purchase Price
Firewheel 18		Garland, TX		AMC		$22.8million
Columbia 14		Columbia, MD		AMC		$12.2million
White Oak Village Cinema 14		Garner, NC		Consolidated		$8.2million
Valley Bend 18		Huntsville, AL		Rave		$18.3million
Grand 18		Winston Salem, NC		Southern		$15.8million
Cityplace 14		Kalamazoo, MI		Rave		$17.3million
Havens Wine Cellars		Napa Valley, CA		Billington Imports, Inc.		$7.0million
Bayou 15		Pensacola, FL		Rave		$20.4million
Grand Theatre 16		Slidell, LA		Southern		$11.5million

Item 3. Legal Proceedings

Other than routine litigation and administrative proceedings arising in the ordinary course of business, we are not presently involved in any litigation nor, to our knowledge, is any litigation threatened against us or our properties, which is reasonably likely to have a material adverse effect on our liquidity or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2006.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table sets forth, for the quarterly periods indicated, the high and low sales prices per share for our common shares on the New York Stock Exchange (“NYSE”) under the trading symbol “EPR” and the distributions declared.

		Share price								Declared
		High				Low				Distribution
2006:
Fourth quarter		$	62.76			$	49.70			$	0.6875
Third quarter			49.98				42.28				0.6875
Second quarter			43.05				39.08				0.6875
First quarter			44.56				40.60				0.6875
2005:
Fourth quarter		$	44.31			$	38.68			$	0.6250
Third quarter			47.50				42.71				0.6250
Second quarter			46.82				41.15				0.6250
First quarter			44.80				40.44				0.6250

The closing price for our common shares on the NYSE on February 26, 2007 was $67.88 per share.

We declared quarterly distributions to common shareholders aggregating $2.75 per common share in 2006 and $2.50 per common share in 2005.

While we intend to continue paying regular quarterly dividends, future dividend declarations will be at the discretion of the Board of Trustees and will depend on our actual cash flow, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code, debt covenants and other factors the Board of Trustees deems relevant. The actual cash flow available to pay dividends may be affected by a number of factors, including the revenues received from rental properties and mortgage notes, our operating expenses, debt service on our borrowings, the ability of lessees to meet their obligations to us and any unanticipated capital expenditures. Our Series A preferred shares have a fixed dividend rate of 9.50%, our Series B preferred shares have a fixed dividend rate of 7.75% and our Series C preferred shares have a fixed dividend rate of 5.75%.

During the year ended December 31, 2006, the Company did not sell any unregistered securities.

On February 26, 2007, there were approximately 577 holders of record of our outstanding common shares.

Information relating to compensation plans under which equity securities of the Company are authorized for issuance is set forth under Part III, Item 12 of this Annual Report on Form 10-K and such information is incorporated herein by reference.

Issuer Purchases of Equity Securities ⁽¹⁾

														Maximum
										Total Number				Number (or
										of Shares				Approximate
										Purchased as				Dollar Value) of
										Part of				Shares that May
										Publicly				Yet Be
		Total Number				Average				Announced				Purchased
		of Shares				Price Paid				Plans or				Under the Plans
Period		Purchased				Per Share				Programs				or Programs
January 1 through January 31, 2006 common stock, Series 1			21,308	(2)		$	43.14				—			$	—
August 1 through August 31, 2006 common stock, Series 1			5,037	(3)			45.89				—				—
Total			26,345			$	43.66				—			$	—

As a company with shares listed on the NYSE, we are required to comply with the corporate governance rules of the NYSE. Our CEO is required to certify to the NYSE that we are in compliance with the governance rules not later than 30 days after the date of each annual shareholder meeting. Our CEO complied with this requirement in 2006. We also filed with the SEC as exhibits to our annual report on Form 10-K for the year ended December 31, 2005 the certifications of our CEO and CFO required under Sections 302 and 906 of the Sarbanes-Oxley Act.

Item 6. Selected Financial Data

Operating statement data
(Dollars in thousands except per share data)

		Year ended December 31,
		2006				2005				2004				2003				2002
Rental revenue		$	167,694				145,227				124,423				89,965				71,610
Other income			3,631				3,517				557				1,195				—
Mortgage financing interest			9,540				3,560				—				—				—
Property operating expense, net of tenant reimbursements			4,413				3,680				2,322				698				201
Other operating expense			3,486				2,985				—				—				—
General and administrative expense			12,515				7,249				6,093				4,785				3,341
Costs associated with loan refinancing			673				—				1,134				—				—
Interest expense, net			47,438				42,427				38,054				30,570				24,475
Depreciation and amortization			31,155				27,597				23,365				16,359				12,862
Income before gain on sale of land, income from joint ventures and minority interests			81,185				68,366				54,012				38,748				30,731
Gain on sale of land			345				—				—				—				202
Equity in income from joint ventures			759				728				654				401				1,421
Minority interests			—				(34	)			(953	)			(1,555	)			(1,195	)
Preferred dividend requirements			(11,857	)			(11,353	)			(5,463	)			(5,463	)			(3,225	)
Net income available to common shareholders		$	70,432				57,707				48,250				32,131				27,934
Net income per common share:
Basic		$	2.69				2.31				2.12				1.81				1.66
Diluted			2.65				2.26				2.07				1.77				1.64
Weighted average number of common shares outstanding:
Basic			26,147				25,019				22,721				17,780				16,791
Diluted			26,627				25,504				23,664				19,051				17,762
Cash dividends declared per common share		$	2.75				2.50				2.25				2.00				1.90

Balance sheet data
(Dollars in thousands)

										December 31,
		2006				2005				2004				2003				2002
Net real estate investments		$	1,415,175				1,303,758				1,144,553				900,096				692,922
Mortgage note and related accrued interest receivable			76,093				44,067				—				—				—
Total assets			1,571,279				1,414,165				1,213,448				965,918				730,387
Common dividends payable			18,204				15,770				14,097				9,829				8,162
Preferred dividends payable			3,110				2,916				1,366				1,366				1,366
Long-term debt			675,305				714,591				592,892				506,555				346,617
Total liabilities			714,123				742,509				620,059				521,509				361,834
Minority interests			4,474				5,235				6,049				21,630				15,375
Shareholders’ equity			852,682				666,421				587,340				422,779				353,178

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K. The forward-looking statements included in this discussion and elsewhere in this Annual Report on Form 10-K involve risks and uncertainties, including anticipated financial performance, business prospects, industry trends, shareholder returns, performance of leases by tenants and other matters, which reflect management’s best judgment based on factors currently known. See “Forward Looking Statements.” Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in this Item and in Item 1A, “Risk Factors.”

Overview

Our primary business strategy is to purchase real estate (land, buildings and other improvements) that we lease to operators of destination-based entertainment and entertainment-related properties. As of December 31, 2006, we had invested approximately $1.5 billion (before accumulated depreciation) in 75 megaplex theatre properties and various restaurant, retail, entertainment, destination recreational and specialty properties located in 25 states and Ontario, Canada. As of December 31, 2006, we had invested approximately $19.3 million in development land and construction in progress for real-estate development. Also, as of December 31, 2006, we had invested approximately US $60.0 million (including accrued interest) in mortgage financing for the development of a new entertainment retail center located in downtown Toronto, Ontario, Canada, $8.1 million (including accrued interest) in mortgage financing for the Crotched Mountain Ski Resort located in Bennington, New Hampshire and $8.1 million in mortgage financing (including accrued interest) for the development of a megaplex theatre property in Louisiana.

Substantially all of our single-tenant properties are leased pursuant to long-term, triple-net leases, under which the tenants typically pay all operating expenses of a property, including, but not limited to, all real estate taxes, assessments and other governmental charges, insurance, utilities, repairs and maintenance. A majority of our revenues are derived from rents received or accrued under long-term, triple-net leases. Tenants at our multi-tenant properties are required to pay common area maintenance charges to reimburse us for their pro rata portion of these costs.

We incur general and administrative expenses including compensation expense for our executive officers and other employees, professional fees and various expenses incurred in the process of identifying, evaluating, acquiring and financing additional properties. We are self-administered and managed by our trustees and executive officers. Our primary non-cash expense is the depreciation of our properties. We depreciate buildings and improvements on our properties over a five-year to 40-year period for tax purposes and financial reporting purposes.

Our property acquisitions and development financing commitments are financed by cash from operations, borrowings under our unsecured revolving credit facility, long-term mortgage debt and the sale of equity securities. It has been our strategy to structure leases and financings to ensure a positive spread between our cost of capital and the rentals paid by our tenants. We have primarily acquired or developed new properties that are pre-leased to a single tenant or multi-tenant properties that have a high occupancy rate. We do not typically develop or acquire properties on a speculative basis or that are not significantly pre-leased. As of December 31, 2006, we have also entered into three joint ventures formed to own and lease single properties, and have provided mortgage note financing as described above. We intend to continue entering into some or all of these types of arrangements in the foreseeable future.

Our primary challenges have been locating suitable properties, negotiating favorable lease and financing terms, and managing our portfolio as we have continued to grow. Because of our emphasis on the entertainment and entertainment-related sector of the real estate industry and the knowledge and industry relationships of our management, we have enjoyed favorable opportunities to acquire, finance and lease properties. We believe those opportunities will continue during 2007.

Our business is subject to a number of risks and uncertainties, including those described in “Risk Factors” in Item 1A of this report.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, management has made its best estimates and assumptions that affect the reported assets and liabilities. The most significant assumptions and estimates relate to revenue recognition, depreciable lives of the real estate, the valuation of real estate, accounting for real estate acquisitions and estimating reserves for uncollectible receivables. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

Rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases. Base rent escalation in other leases is dependent upon increases in the Consumer Price Index (CPI) and accordingly, management does not include any future base rent escalation amounts on these leases in current revenue. Most of our leases provide for percentage rents based upon the level of sales achieved by the tenant. These percentage rents are recognized once the required sales level is achieved. Lease termination fees are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

We are required to make subjective assessments as to the useful lives of our properties for the purpose of determining the amount of depreciation to reflect on an annual basis with respect to those properties. These assessments have a direct impact on our net income. Depreciation and amortization are provided on the straight-line method over the useful lives of the assets, as follows:

Buildings		40 years
Tenant improvements		Base term of
		lease or useful
		life, whichever
		is shorter
Furniture, fixtures and equipment		3 to 25 years

We are required to make subjective assessments as to whether there are impairments in the value of our rental properties. These estimates of impairment may have a direct impact on our consolidated financial statements.

We apply the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable. Certain factors that may occur and indicate that impairments may exist include, but are not limited to: underperformance relative to projected future operating results, tenant difficulties and

significant adverse industry or market economic trends. No such indicators existed during 2006. If an indicator of possible impairment exists, a property is evaluated for impairment by comparing the carrying amount of the property to the estimated undiscounted future cash flows expected to be generated by the property. If the carrying amount of a property exceeds its estimated future cash flows on an undiscounted basis, an impairment charge is recognized in the amount by which the carrying amount of the property exceeds the fair value of the property. Management estimates fair value of our rental properties based on projected discounted cash flows using a discount rate determined by management to be commensurate with the risk inherent in the Company. Management did not record any impairment charges for 2006.

Upon acquisitions of real estate properties, we make subjective estimates of the fair value of acquired tangible assets (consisting of land, building, tenant improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities (consisting of above and below market leases, in-place leases, tenant relationships and assumed financing that is determined to be above or below market terms) in accordance with Statement of Financial Accounting Standards (SFAS) No.141, Business Combinations. We utilize methods similar to those used by independent appraisers in making these estimates. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. These estimates have a direct impact on our net income.

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

Recent Developments

Following are our significant developments during the year ended December 31, 2006:

On January 31, 2006, we amended and restated our secured revolving credit facility to increase the size of the facility to $200 million from $150 million and reduce the interest rate charged on the facility from rates ranging from LIBOR plus 175 to 250 basis points to LIBOR plus 130 to 175 basis points. The facility was also converted from a secured to an unsecured facility. The unsecured revolving credit facility has a three year term expiring in 2009 with a one year extension available at our option. As a result of this amendment and restatement, we expensed certain unamortized financing costs, totaling approximately $673 thousand, in the first quarter of 2006. On June 6, 2006 the size of the facility was increased to $235 million from $200 million with no modification to the terms and conditions of the credit agreement.

On February 10, 2006, we paid off approximately $109 million in mortgage notes payable that had matured using funds from related debt service escrow deposits, borrowings under our amended and restated unsecured revolving credit facility and approximately $44 million in proceeds from the refinancing of two of the theatres originally included as security for those mortgage notes payable. The new mortgage loans bear interest at 5.84%, mature on March 6, 2016 and require monthly principal and interest payments totaling $279 thousand with a final principal payment at maturity totaling $33.9 million.

On May 22, 2006, we obtained two non-recourse mortgage loans totaling $31.0 million. The proceeds of these loans were used to pay down our unsecured revolving credit facility. These mortgages are each secured by one theatre property located in Hurst, Texas and one theatre property in Mesa, Arizona. The mortgage loans bear interest at 6.3715%, mature on June 1, 2016 and require monthly principal and interest payments totaling $207 thousand with final principal payments at maturity totaling $24.4 million.

On September 12 and September 14, 2006, we obtained four non-recourse mortgage loans totaling $27.8 million. The proceeds of these loans were used to pay down our unsecured revolving credit facility. These mortgages are secured by two theatre properties located in California and one each in South Carolina and North Carolina. The mortgage loans bear interest at 6.099%, mature on October 1, 2016 and require monthly principal and interest payments totaling $180 thousand with final principal payments at maturity totaling $21.7 million.

On September 29, 2006, we obtained three non-recourse mortgage loans totaling $20.9 million. The proceeds of these loans were used to pay down our unsecured revolving credit facility. These mortgages are secured by three theatre properties located in Georgia, California and Louisiana. The mortgage loans bear interest at 6.02%, mature on October 6, 2016 and require monthly principal and interest payments totaling $135 thousand with final principal payments at maturity totaling $16.2 million.

On February 8, 2006, we issued 1.0 million common shares at $41.25 per share in a registered public offering. The underwriter of this offering subsequently exercised an option to purchase an additional 150,000 common shares at $41.25 per share which closed on February 15, 2006. Total net proceeds after expenses were approximately $46.2 million, and were used to pay down our unsecured revolving credit facility, pending application for general corporate purposes, including the acquisition, development and financing of properties.

On December 22, 2006, we issued 5.4 million 5.75% Series C cumulative convertible preferred shares at $24.50 per share in a registered public offering. Total net proceeds after expenses were approximately $130.8 million, and were used to pay down our unsecured revolving credit facility, pending application for general corporate purposes, including the acquisition, development and financing of properties.

On March 3, 2006, we invested an additional $8.7 million Canadian (U.S. $7.7 million) in the secured mortgage construction loan to Metropolis Limited Partnership (the Partnership) and the original mortgage note was amended and restated. No principal or interest payments on the mortgage note receivable are now due prior to May 31, 2008. In addition, the Option Date (as defined in the loan agreement) was changed to May 31, 2008 and the Partnership’s extension right was reduced from 12 months to 6 months such that the outside Option Date remains November 30, 2008. The additional $8.7 million Canadian bears interest at 15% and has a stated maturity of February 9, 2011. Interest is payable monthly beginning in June 2008. We received a loan origination fee at closing of $400 thousand Canadian which is being amortized as additional mortgage financing interest income over the term of the loan. All other terms of the mortgage note remain unchanged. (For further information, see Note 15 to the consolidated financial statements in this Annual Report on Form 10-K).

On March 10, 2006, we provided a secured mortgage loan of $8.0 million to SNH Development, Inc. The secured property is the Crotched Mountain Ski Resort located in Bennington, New Hampshire. The property serves the Boston and Southern New Hampshire markets and has approximately 45 acres of skiing terrain that is serviced by nine lifts. This loan is guaranteed by Peak Resorts, Inc., which operates the property, and has a maturity date of March 10, 2027. Monthly interest payments are made by the

borrower and the unpaid principal balance initially bears interest at 9.25% per annum. Annually, this interest rate increases based on a formula dependent in part on increases in CPI.

On March 30, 2006, we acquired two megaplex theatre properties in Garland, Texas and Columbia, Maryland. The Firewheel 18 and Columbia 14 are both operated by AMC and were acquired for a total cost of approximately $35.0 million. Of this cost, we allocated $14.8 million to the building and $8.0 million to the land at Firewheel 18. For Columbia 14, $12.2 million was allocated to the building. As Columbia 14 is subject to a third-party ground lease, for which the tenant is responsible, no amount was allocated to land. The theatres are leased under long-term triple-net leases.

On May 5, 2006, we agreed to terminate a ground lease on our Hialeah, Florida theatre, The Grand 18. In conjunction with this termination, the tenant paid us $4.0 million and we released the tenant from its ground lease obligation, which was a 20-year lease expiring in 2020. The building improvements, which were owned by the tenant, reverted to us in conjunction with the ground lease termination. This $4.0 million termination fee was recorded as rental income and no value was assigned to the improvements. The property was subsequently leased to an unrelated tenant.

On August 17, 2006, we completed the acquisition of a megaplex theatre property in Huntsville, Alabama. The Valley Bend 18 is operated by Rave Motion Pictures and was acquired for a total cost (including land and building) of approximately $18.3 million. This theatre is leased under a long-term triple-net lease.

On September 1, 2006, we exercised our option to purchase 25 acres of development land adjacent to our property in Suffolk, Virginia. The land was acquired for a total cost of approximately $5.0 million. We intend to develop this property into additional retail space.

On September 18, 2006, our restaurant in Southfield Michigan, which we previously operated through a wholly-owned taxable REIT subsidiary, was closed and the space was subsequently leased to an unrelated restaurant tenant.

On December 13, 2006, we purchased a ten acre vineyard and winery facility in Napa Valley, California, and simultaneously leased this property to a wholly-owned subsidiary of Billington Imports, Inc. The acquisition price for the property was approximately $7.0 million and it is leased under a long-term triple-net lease.

On December 28, 2006, we completed the acquisition of a megaplex theatre property in Pensacola, Florida. The Bayou 15 is operated by Rave Motion Pictures and was acquired for a total cost (including land and building) of approximately $20.4 million. This theatre is leased under a long-term triple-net lease.

During the quarter ended December 31, 2006, we provided a secured construction mortgage loan of $8.0 million to Boardwalk Ventures, LLC, Grand Slidell, LLC and Esplanade Theatres, LLC. The funds from this loan are being used to construct a megaplex theatre property in Louisiana. This loan is secured by the property under development and guaranteed by VSS-Southern Theatres, LLC, which will operate the property at completion. The loan has a maturity date of November 9, 2007 and monthly interest payments are made by the borrower. The unpaid principal balance bears interest at LIBOR plus 3.5%.

During the year ended December 31, 2006, we completed development of four megaplex theatre properties located in North Carolina, Michigan and Louisiana. The White Oak Village Cinema 14 in Garner, North Carolina is operated by Consolidated Theatres and was completed for a total development cost (including land and building) of approximately $8.2 million. The Grand 18 in Winston-Salem, North

Carolina is operated by Southern Theatres and was completed for a total development cost (including land and building) of approximately $15.8 million. The Cityplace 14 in Kalamazoo, Michigan is operated by Rave Motion Pictures and was completed for a total development cost (including land and building) of approximately $17.3 million. The Grand Theatre 16 in Slidell, Louisiana is operated by Southern Theatres and was completed for a total development cost of approximately $11.5 million (the land at Slidell is subject to a third party ground lease). These theatres are leased under long-term triple-net leases.

As of December 31, 2006, we had two theatre development projects under construction for which we have agreed to finance the development costs. The properties have been pre-leased to the prospective tenants under long-term triple-net leases. These theatres are expected to have a total of 32 screens and their development costs (including land) are expected to be approximately $28.8 million. Through December 31, 2006, we have invested $12.0 million in these projects (including land), and have commitments to fund approximately $16.8 million of additional improvements. Development costs are advanced by us in periodic draws. If we determine that construction is not being completed in accordance with the terms of the development agreement, we can discontinue funding construction draws.

Results of Operations

Year ended December 31, 2006 compared to year ended December 31, 2005

Rental revenue was $167.7 million for the year ended December 31, 2006, compared to $145.2 million for the year ended December 31, 2005. The $22.5 million increase resulted primarily from the property acquisitions and developments completed in 2005 and 2006, base rent increases on existing properties and the recognition of a lease termination fee of $4.0 million related to the termination of our lease with the previous tenant of our theatre in Hialeah, Florida. This property has been leased to a new tenant. No termination fees were recognized during the year ended December 31, 2005. Percentage rents of $1.6 million and $1.9 million were recognized during 2006 and 2005, respectively. Straight-line rents of $3.9 and $2.2 million were recognized during 2006 and 2005, respectively. As of December 31, 2006 and 2005, the receivable for straight-line rents was $16.4 million and $4.7 million, respectively. As further described in Note 19 to the consolidated financial statements in this Annual Report on Form 10-K, the Company adopted Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”) effective January 1, 2006. The adjustments made in conjunction with our implementation of SAB 108 resulted in an increase of approximately $1.4 million in straight-line rental revenues for the year ended December 31, 2006 and an increase in the net receivable for straight-line rents of $9.0 million at December 31, 2006.

Tenant reimbursements totaled $14.6 million for the year ended December 31, 2006 compared to $12.5 million for the year ended December 31, 2005. These tenant reimbursements arise from the operations of our retail centers. The $2.1 million increase is due to a $0.7 million increase at our retail center in Burbank, California which was acquired on March 31, 2005, and the remainder of the increase is due to increases in tenant reimbursement rates primarily at our retail centers in Ontario, Canada, which resulted in an increase in tenant reimbursements of $1.1 million.

Other income was $3.6 million for the year ended December 31, 2006 compared to $3.5 million for the year ended December 31, 2005. The increase of $0.1 million is due to the following:

•

An increase of $0.5 million in revenues from a restaurant in Southfield, Michigan opened in September 2005 and previously operated through a wholly-owned taxable REIT subsidiary. As discussed in the “Recent Developments” section in this Annual Report on Form 10-K, the

			restaurant in Southfield, Michigan was closed during the third quarter of 2006 and the space was leased to an unrelated restaurant tenant.
	•		An increase of $0.4 million related to the recognition of a gain for the year ended December 31, 2006 resulting from an insurance claim. As a result of the hurricane events of October 2005, one non triple-net retail property in Pompano Beach, Florida suffered significant damage to its roof. The insurance company reimbursed us for the replacement of the roof less our deductible in January 2007.
	•		A decrease of $0.2 million in revenues from our family bowling center in Westminster, Colorado which is operated through a wholly-owned taxable REIT subsidiary.
	•		Development fees of $0.6 million were received in the year ended December 31, 2005 and no development fees were received in the year ended December 31, 2006.

Mortgage financing interest for the year ended December 31, 2006 was $9.5 million compared to $3.6 million for the year ended December 31, 2005 and related to interest income from mortgage financing for the development of an entertainment retail center in Canada, mortgage financing for a ski resort in Bennington, New Hampshire and mortgage financing for the development of a megaplex theatre in Louisiana in June of 2005, March of 2006 and November of 2006, respectively (described in Note 15 to the consolidated financial statements in this Annual Report on Form 10-K and in “Recent Developments” above).

Our property operating expense totaled $19.0 million for the year ended December 31, 2006 compared to $16.2 million for the year ended December 31, 2005. These property operating expenses arise from the operations of our retail centers. The $2.8 million increase is due to increases in property taxes, bad debt expense and other property operating expenses at certain of these properties. The property operating expenses at our Burbank, California retail center, which was acquired on March 31, 2005, increased by $1.1 million of which $0.3 million was incurred in the second quarter of 2006 in conjunction with the early termination of a property management agreement covering this center. The property operating expenses at our Ontario, Canada retail centers increased by $1.4 million primarily due to increases in property taxes. Additionally, bad debt expense increased by $0.4 million during 2006.

Other operating expense totaled $3.5 million for the year ended December 31, 2006 compared to $3.0 million for the year ended December 31, 2005. The increase of $0.5 million primarily relates to expenses from a restaurant in Southfield, Michigan opened in September 2005, and previously operated through a wholly-owned taxable REIT subsidiary. As discussed in the “Recent Developments” section in this Annual Report on Form 10-K, the restaurant in Southfield Michigan was closed during the third quarter of 2006 and the space was leased to an unrelated restaurant tenant.

Our general and administrative expense totaled $12.5 million for the year ended December 31, 2006 compared to $7.3 million for the year ended December 31, 2005. This increase primarily resulted from share-based compensation expense, which we account for in accordance with SFAS 123R, Share Based Payment. In 2006, we changed how we account for restricted stock bonus awards issued pursuant to our Annual Incentive Plan. As further described in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K, during the year ended December 31, 2006, we expensed $1.7 million of unvested restricted stock awards that related to bonus awards from prior years. This adjustment was made because the employees who received the awards could have elected to receive cash instead of restricted shares at the time in which they elected to receive their bonuses in restricted shares. Additionally, as further described in Note 18 to the consolidated financial statements in this Annual Report on Form 10-K, during the year ended December 31, 2006, we recognized an expense of $1.4 million related to the retirement of one of our executives. This amount represented the fair value of the executive’s unvested share options and restricted shares at his retirement date of June 30, 2006. The remainder of the increase is due primarily to payroll and related expenses attributable to increases in base and incentive

compensation, additional employees, certain employee benefits and grants of restricted shares to management, as well as increases in franchise taxes and professional fees.

Costs associated with loan refinancing for the year ended December 31, 2006 were $0.7 million. These costs related to the amendment and restatement of our revolving credit facility and consisted of the write-off of $0.7 million of certain unamortized financing costs. No such costs were incurred during the year ended December 31, 2005.

Our net interest expense increased by $5.0 million to $47.4 million for the year ended December 31, 2006 from $42.4 million for the year ended December 31, 2005. The increase in net interest expense primarily resulted from increases in long-term debt used to finance real estate acquisitions and increases in the interest rates associated with our borrowings under the unsecured revolving credit facility.

Depreciation and amortization expense totaled $31.2 million for the year ended December 31, 2006 compared to $27.6 million for the year ended December 31, 2005. The $3.6 million increase resulted primarily from the property acquisitions completed in 2005 and 2006.

The gain on sale of land of $0.3 million for the year ended December 31, 2006 was due to the sale of an acre of land that was originally purchased along with one of our megaplex theatres. There was no gain on sale of land recognized for the year ended December 31, 2005.

Preferred dividend requirements for the year ended December 31, 2006 were $11.9 million compared to $11.4 million for the same period in 2005. The $0.5 million increase is due to the issuance of 3.2 million Series B preferred shares in January of 2005 and 5.4 million Series C preferred shares in December of 2006.

Year ended December 31, 2005 compared to year ended December 31, 2004

Rental revenue was $145.2 million for the year ended December 31, 2005, compared to $124.4 million for the year ended December 31, 2004. The $20.8 million increase resulted primarily from the property acquisitions and developments completed in 2005 and 2004 and base rent increases on existing properties. Percentage rents of $1.9 million and $2.2 million were recognized during 2005 and 2004, respectively. Straight-line rents of $2.2 million were recognized for both 2005 and 2004. As of December 31, 2005 and 2004, the receivable for straight-line rents was $4.7 million and $2.4 million, respectively.

Tenant reimbursements totaled $12.5 million for the year ended December 31, 2005 compared to $8.3 million for the year ended December 31, 2004. These tenant reimbursements arise from the operations of our retail centers. The $4.2 million increase is due primarily to the acquisitions of the retail centers in Burbank, California on March 31, 2005 and Ontario, Canada on March 1, 2004.

Other income was $3.5 million for the year ended December 31, 2005 compared to $0.6 million for the year ended December 31, 2004. The increase of $2.9 million relates to revenues from a family bowling center in Westminster, Colorado opened in November 2004 and a restaurant in Southfield, Michigan opened in September 2005. Both were operated through wholly-owned taxable REIT subsidiaries. As discussed in the Recent Developments section in this Annual Report on Form 10-K, the restaurant in Southfield Michigan was closed during the third quarter of 2006 and the space was leased to an unrelated restaurant tenant.

Mortgage financing interest for the year ended December 31, 2005 was $3.6 million and related solely to interest income from the mortgage note financing we provided in Canada in June of 2005 (described in Note 15 to the consolidated financial statements in this Annual Report on Form 10-K). No such revenue

was recognized during 2004.

Our property operating expense totaled $16.2 million for the year ended December 31, 2005 compared to $10.7 million for the year ended December 31, 2004. These property operating expenses arise from the operations of our retail centers. The $5.5 million increase is due primarily to the acquisitions of the retail centers in Burbank, California on March 31, 2005 and Ontario, Canada on March 1, 2004, and increases in property taxes and maintenance at certain of these properties.

Other operating expense totaled $3.0 million for the year ended December 31, 2005 and related solely to the operations of the family bowling center in Westminster, Colorado and a restaurant in Southfield, Michigan. Both were operated through wholly-owned taxable REIT subsidiaries. No such costs were incurred during 2004. As discussed in the “Recent Developments” section in this Annual Report on Form 10-K, the restaurant in Southfield Michigan was closed during the third quarter of 2006 and the space was leased to an unrelated restaurant tenant.

Our general and administrative expenses totaled $7.3 million for the year ended December 31, 2005 compared to $6.1 million for the year ended December 31, 2004. The $1.2 million increase is due primarily to the following:

	•		An increase in franchise taxes due to an increase in the size of our real estate portfolio.
	•		Payroll and related expenses attributable to increases in base compensation, bonus awards, and payroll taxes related to the vesting of stock grants and the exercise of stock options, and the addition of employees.
	•		Grants of restricted shares to management.

Costs associated with loan refinancing for the year ended December 31, 2004 were $1.1 million. These costs related to the termination of our iStar Credit Facility and consisted of a prepayment penalty of $0.4 million and the write-off of $0.7 million of remaining unamortized financing fees. No such costs were incurred during the year ended December 31, 2005.

Our net interest expense increased by $4.3 million to $42.4 million for the year ended December 31, 2005 from $38.1 million for the year ended December 31, 2004. The increase in net interest expense primarily resulted from increases in long-term debt used to finance real estate acquisitions and increases in the interest rate associated with our borrowings under the revolving credit facility that we amended and restated in 2006.

Depreciation and amortization expense totaled $27.6 million for the year ended December 31, 2005 compared to $23.4 million for the year ended December 31, 2004. The $4.2 million increase resulted primarily from the property acquisitions completed in 2005 and 2004.

For the year ended December 31, 2005, minority interest in net income was $34 thousand compared to $953 thousand for the year ended December 31, 2004. The decrease is due primarily to the conversion of the preferred interest in EPT Gulf States, LLC as of September 20, 2004 to 857,145 common shares of the Company. Minority interest for the year ended December 31, 2005, relates solely to New Roc.

Preferred dividend requirements for the year ended December 31, 2005 were $11.4 million compared to $5.5 million for the same period in 2004. The $5.9 million increase is due to the issuance of 3.2 million Series B preferred shares in January of 2005 (described in Note 14 to the consolidated financial statements in this Annual Report on Form 10-K).

Liquidity and Capital Resources

Cash and cash equivalents were $9.4 million at December 31, 2006. In addition, we had restricted cash of $7.4 million at December 31, 2006 required in connection with debt service, payment of real estate taxes and capital improvements.

Mortgage Debt and Credit Facilities

As of December 31, 2006, we had total debt outstanding of $675.3 million. As of December 31, 2006, $650.3 million of debt outstanding was fixed rate mortgage debt secured by a substantial portion of our rental properties, with a weighted average interest rate of approximately 6.1%. All of our debt is described in Note 7 to the consolidated financial statements in this Annual Report on Form 10-K.

At December 31, 2006, we had $25.0 million in debt outstanding under our $235.0 million unsecured revolving credit facility, with interest at a floating rate. This credit facility matures in January of 2009.

Our principal investing activity is the purchase and development of rental property, which has generally been financed with mortgage debt and the proceeds from equity offerings. Our unsecured revolving credit facility is also used to finance the acquisition or development of properties, and to provide mortgage financing. Continued growth of our rental property and mortgage financing portfolios will depend in part on our continued ability to access funds through additional borrowings and equity security offerings.

Capital Structure and Coverage Ratios

We believe that our shareholders are best served by a conservative capital structure. Therefore, we seek to maintain a conservative debt level on our balance sheet and solid interest, fixed charge and debt service coverage ratios. We expect to maintain a debt to total capitalization ratio (i.e. total-long term debt of the Company as a percentage of shareholders’ equity plus total liabilities) between 50% and 55%. However, the timing and size of our equity offerings may cause us to temporarily operate outside of this range. At December 31, 2006, our debt to total capitalization ratio was 43%. The 43% is outside of our range due to our offering of Series C preferred shares in December 2006 which raised net proceeds of approximately $130.8 million. Our long-term debt as a percentage of our total market capitalization at December 31, 2006 was 27%. We do not manage to a ratio based on total market capitalization due to the inherent variability that is driven by changes in the market price of our common shares. We calculate our total market capitalization of $2.5 billion as follows at December 31, 2006:

	•		Common shares outstanding of 26,477,924, multiplied by the last reported sales price of our common shares on the NYSE of $58.44 per share, or $1.55 billion;
	•		Aggregate liquidation value of our Series A preferred shares of $57.5 million;
	•		Aggregate liquidation value of our Series B preferred shares of $80 million;
	•		Aggregate liquidation value of our Series C preferred shares of $135 million; and
	•		Total long-term debt of $675.3 million

Our interest coverage ratio for the years ended December 31, 2006, 2005 and 2004 was 3.3 times, 3.2 times, and 2.9 times, respectively. Interest coverage is calculated as the interest coverage amount (as calculated in the following table) divided by interest expense, gross (as calculated in the following table). We consider the interest coverage ratio to be an appropriate supplemental measure of a company’s ability to meet its interest expense obligations. Our calculation of the interest coverage ratio may be different from the calculation used by other companies, and therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures. The following table shows the calculation of our interest coverage ratios (dollars in thousands):

		Year Ended December 31,
		2006				2005				2004
Interest coverage amount		$	163,708				140,449				119,491
Interest expense, gross			49,092				44,203				41,678
Preferred share dividends			11,857				11,353				5,463
Fixed charges		$	60,949				55,556				47,141
Fixed charge coverage ratio			2.7				2.5				2.5

Our debt service coverage ratio for the years ended December 31, 2006, 2005 and 2004 was 2.6 times, 2.4 times, and 2.2 times, respectively. The debt service coverage ratio is calculated in exactly the same manner as the interest coverage ratio, except that recurring principal payments are also added to the denominator. We consider the debt service coverage ratio to be an appropriate supplemental measure of a company’s ability to make its debt service payments. Our calculation of the debt service coverage ratio may be different from the calculation used by other companies and, therefore, comparability may be limited. This information should not be considered as an alternative to any GAAP liquidity measures. The following table shows the calculation of our debt service charge coverage ratios (dollars in thousands):

		Year Ended December 31,
		2006				2005				2004
Interest coverage amount		$	163,708				140,449				119,491
Interest expense, gross			49,092				44,203				41,678
Recurring principle payments			14,810				14,885				12,923
Debt service		$	63,902				59,088				54,601
Debt service coverage ratio			2.6				2.4				2.2