UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2007~~March 31, 2008


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

For the transition period from to

Commission File Number: 1-13561

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 West 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

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.

Yesþ Noo

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


Large accelerated filerþ		Accelerated ~~filer~~o ~~Non-accelerated~~ filero		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

At ~~October 30, 2007,~~April 29, 2008, there were ~~28,084,091 Common Shares~~30,625,852 common shares of beneficial interest outstanding.

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 Quarterly Report on Form 10-Q. 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 the Annual Report on Form 10-K for the year ended December 31, ~~2006~~2007 filed with the SEC on February ~~28, 2007~~26, 2008 and, to the extent applicable, our Quarterly Reports on Form 10-Q.

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

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

ENTERTAINMENT PROPERTIES TRUST
Consolidated Balance Sheets
(Dollars in thousands except share data)


	September 30, 2007			December 31, 2006			March 31, 2008			December 31, 2007
	(Unaudited)						(Unaudited)
Assets

Rental properties, net of accumulated depreciation of $168.2 million and $141.6 million at September 30, 2007 and December 31, 2006, respectively	$	1,643,446		$	1,395,903
Rental properties, net of accumulated depreciation of $186,926 and $177,607 at March 31, 2008 and December 31, 2007, respectively							$	1,640,879		$	1,648,621
Property under development		27,366			19,272			21,317			23,001
Mortgage notes and related accrued interest receivable		277,447			76,093			338,984			325,442
Investment in joint ventures		2,312			2,182			42,165			42,331
Cash and cash equivalents		10,758			9,414			10,571			15,170
Restricted cash		10,571			7,365			10,871			12,789
Intangible assets, net		17,058			9,366			15,677			16,528
Deferred financing costs, net		10,000			10,491			10,348			10,361
Accounts and notes receivable		49,629			30,043
Accounts and notes receivable, net								72,695			61,193
Other assets		13,768			11,150			17,904			16,197

Total assets	$	2,062,355		$	1,571,279		$	2,181,411		$	2,171,633


Liabilities and Shareholders’ Equity

Liabilities:
Accounts payable and accrued liabilities	$	23,271		$	16,480		$	20,612		$	26,598
Common dividends payable		20,279			18,204			23,697			21,344
Preferred dividends payable		5,611			3,110			5,611			5,611
Unearned rents and interest		4,358			1,024			6,124			10,782
Long-term debt		1,060,607			675,305			1,106,336			1,081,264

Total liabilities		1,114,126			714,123			1,162,380			1,145,599
Minority interests		18,584			4,474			17,610			18,141
Shareholders’ equity:
Common Shares, $.01 par value; 50,000,000 shares authorized; and 27,477,084 and 27,153,411 shares issued at September 30, 2007 and December 31, 2006, respectively		275			272
Preferred Shares, $.01 par value; 25,000,000 shares authorized:
2,300,000 Series A shares issued at December 31, 2006; liquidation preference of $57,500,000		—			23
3,200,000 Series B shares issued at September 30, 2007 and December 31, 2006; liquidation preference of $80,000,000		32			32
5,400,000 Series C convertible shares issued at September 30, 2007 and December 31, 2006; liquidation preference of $135,000,000		54			54
4,600,000 Series D shares issued at September 30, 2007; liquidation preference of $115,000,000		46			—
Common Shares, $.01 par value; 50,000,000 shares authorized; and 29,046,620 and 28,878,285 shares issued at March 31, 2008 and December 31, 2007, respectively								290			289
Preferred Shares, $.01 par value; 25,000,000 shares authorized; 3,200,000 Series B shares issued at March 31, 2008 and December 31, 2007; liquidation preference of $80,000,000								32			32
5,400,000 Series C convertible shares issued at March 31, 2008 and December 31, 2007; liquidation preference of $135,000,000								54			54
4,600,000 Series D shares issued at March 31, 2008 and December 31, 2007; liquidation preference of $115,000,000								46			46
Additional paid-in-capital		948,888			883,639			1,027,885			1,023,598
Treasury shares at cost: 793,676 and 675,487 common shares at September 30, 2007 and December 31, 2006, respectively		(22,889	)		(15,500	)
Treasury shares at cost: 836,646 and 793,676 common shares at March 31, 2008 and December 31, 2007, respectively								(25,059	)		(22,889	)
Loans to shareholders		(3,525	)		(3,525	)		(3,525	)		(3,525	)
Accumulated other comprehensive income		32,644			12,501			29,590			35,994
Distributions in excess of net income		(25,880	)		(24,814	)		(27,892	)		(25,706	)

Shareholders’ equity		929,645			852,682			1,001,421			1,007,893

Total liabilities and shareholders’ equity	$	2,062,355		$	1,571,279		$	2,181,411		$	2,171,633

ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2007			2006			2007			2006			2008			2007
Rental revenue	$	48,148		$	41,362		$	136,703		$	125,442		$	49,122		$	42,868
Tenant reimbursements		4,704			3,782			12,621			10,721			5,672			3,636
Other income		506			737			1,780			2,663			711			781
Mortgage financing interest		7,651			2,629			17,300			6,808
Mortgage and other financing income														10,354			3,488

Total revenue		61,009			48,510			168,404			145,634			65,859			50,773

Property operating expense		5,810			4,799			15,860			14,262			7,061			4,561
Other expense		1,048			897			2,590			2,903			936			607
General and administrative expense		3,023			2,253			9,083			10,030			4,413			3,232
Costs associated with loan refinancing		—			—			—			673
Interest expense, net		16,085			12,234			41,669			35,179			17,468			11,417
Depreciation and amortization		9,881			7,855			27,269			23,092			10,672			8,262


Income before gain on sale of land, equity in income from joint ventures, minority interest and discontinued operations		25,162			20,472			71,933			59,495

Gain on sale of land		—			—			—			345
Income before equity in income from joint ventures, minority interest and discontinued operations														25,309			22,694
Equity in income from joint ventures		200			191			597			566			1,282			198
Minority interest		988			—			988			—			531			—


Income from continuing operations	$	26,350		$	20,663		$	73,518		$	60,406		$	27,122		$	22,892

Discontinued operations:
Income from discontinued operations		—			53			777			488			—			18
Gain on sale of real estate		—			—			3,240			—


Net income		26,350			20,716			77,535			60,894			27,122			22,910

Preferred dividend requirements		(5,611	)		(2,916	)		(15,701	)		(8,747	)		(5,611	)		(4,856	)
Series A preferred share redemption costs		—			—			(2,101	)		—

Net income available to common shareholders	$	20,739		$	17,800		$	59,733		$	52,147		$	21,511		$	18,054


Per share data:
Basic earnings per share data:
Income from continuing operations available to common shareholders	$	0.78		$	0.67		$	2.11		$	1.98		$	0.77		$	0.69
Income from discontinued operations		—			0.01			0.15			0.02			—			—

Net income available to common shareholders	$	0.78		$	0.68		$	2.26		$	2.00		$	0.77		$	0.69


Diluted earnings per share data:
Income from continuing operations available to common shareholders	$	0.77		$	0.66		$	2.07		$	1.95		$	0.76		$	0.67
Income from discontinued operations		—			—			0.15			0.02			—			—

Net income available to common shareholders	$	0.77		$	0.66		$	2.22		$	1.97		$	0.76		$	0.67


Shares used for computation (in thousands):
Basic		26,432			26,298			26,378			26,093			27,843			26,282
Diluted		26,824			26,769			26,858			26,511			28,191			26,820

Dividends per common share	$	0.7600		$	0.6875		$	2.2800		$	2.0625		$	0.84		$	0.76

ENTERTAINMENT PROPERTIES TRUST
Consolidated Statement of Changes in Shareholders’ Equity
~~Nine~~Three Months Ended ~~September 30, 2007~~March 31, 2008
(Unaudited)
(Dollars in ~~thousands, except share data)~~thousands)

Accumulated
Additional other Distributions
Common Stock Preferred Stock paid-in Treasury Loans to comprehensive in excess of
Shares Par Shares Par capital shares shareholders income net income Total
Balance at December 31, 2006 27,153 $ 272 10,900 $ 109 $ 883,639 $ (15,500 ) $ (3,525 ) $ 12,501 $ (24,814 ) $ 852,682

Shares issued to Trustees 6 — — — 354 — — — — 354
Issuance of restricted shares, including restricted shares issued for payment of bonuses 129 1 — — 1,334 — — — — 1,335
Amortization of restricted shares — — — — 1,902 — — — — 1,902
Share option expense — — — — 319 — — — — 319
Foreign currency translation adjustment — — — — — — — 29,730 — 29,730
Change in unrealized loss on derivatives — — — — — — — (9,587 ) — (9,587 )
Net income — — — — — — — — 77,535 77,535
Purchase of 24,740 common shares for treasury in conjunction with vesting of employees’ restricted stock — — — — — (1,448 ) — — — (1,448 )
Issuances of common shares in Dividend Reinvestment Plan 8 — — — 465 — — — — 465
Issuance of preferred shares, net of costs of $3.9 million — — 4,600 46 111,079 — — — — 111,125
Redemption of Series A preferred shares — — (2,300 ) (23 ) (55,412 ) — — — (2,101 ) (57,536 )
Stock option exercises, net 181 2 — — 5,208 (5,941 ) — — — (731 )
Dividends to common shareholders ($2.28 per share) — — — — — — — — (60,799 ) (60,799 )
Dividends to Series A preferred shareholders ($0.9830 per share) — — — — — — — — (2,261 ) (2,261 )
Dividends to Series B preferred shareholders ($1.4531 per share) — — — — — — — — (4,650 ) (4,650 )
Dividends to Series C preferred shareholders ($1.0781 per share) — — — — — — — — (5,822 ) (5,822 )
Dividends to Series D preferred shareholders ($0.6452 per share) — — — — — — — — (2,968 ) (2,968 )

Balance at September 30, 2007 27,477 $ 275 13,200 $ 132 $ 948,888 $ (22,889 ) $ (3,525 ) $ 32,644 $ (25,880 ) $ 929,645


																	Accumulated
									Additional								other			Distributions
	Common Stock				Preferred Stock				paid-in		Treasury			Loans to			comprehensive			in excess of
	Shares		Par		Shares		Par		capital		shares			shareholders			income			net income			Total
Balance at December 31, 2007		28,878	$	289		13,200	$	132	$	1,023,598	$	(22,889	)	$	(3,525	)	$	35,994		$	(25,706	)	$	1,007,893
Issuance of nonvested shares, including nonvested shares issued for the payment of bonuses		121		1		—		—		1,991		—			—			—			—			1,992
Amortization of nonvested shares		—		—		—		—		795		—			—			—			—			795
Share option expense		—		—		—		—		113		—			—			—			—			113
Foreign currency translation adjustment		—		—		—		—		—		—			—			(8,143	)		—			(8,143	)
Change in unrealized loss on derivatives		—		—		—		—		—		—			—			1,739			—			1,739
Net income		—		—		—		—		—		—			—			—			27,122			27,122
Purchase of 16,771 common shares for treasury		—		—		—		—		—		(777	)		—			—			—			(777	)
Issuances of common shares		3		—		—		—		122		—			—			—			—			122
Stock option exercises, net		45		—		—		—		1,266		(1,393	)		—			—			—			(127	)
Dividends to common and preferred shareholders		—		—		—		—		—		—			—			—			(29,308	)		(29,308	)

Balance at March 31, 2008		29,047	$	290		13,200	$	132	$	1,027,885	$	(25,059	)	$	(3,525	)	$	29,590		$	(27,892	)	$	1,001,421

See accompanying notes to consolidated financial statements.

ENTERTAINMENT PROPERTIES TRUST
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2007			2006			2008			2007
Operating activities:							��
Net income	$	77,535		$	60,894		$	27,122		$	22,910
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest in net income		(988	)		—
Gain on sale of land		—			(345	)
Minority interest								(531	)		—
Income from discontinued operations		(4,017	)		(488	)		—			(18	)
Costs associated with loan refinancing (non-cash portion)		—			673
Equity in income from joint ventures		(597	)		(566	)		(1,282	)		(198	)
Distributions from joint ventures		675			652			1,486			224
Depreciation and amortization		27,269			23,092			10,672			8,262
Amortization of deferred financing costs		2,125			2,049			800			662
Share-based compensation expense to management and trustees		2,423			4,456			996			781
Increase in mortgage notes accrued interest receivable		(10,392	)		(6,350	)		(4,844	)		(2,745	)
Increase in accounts receivable		(2,377	)		(3,135	)		(1,357	)		(23	)
Increase in other assets		(841	)		(2,050	)		(1,013	)		(1,379	)
Increase in accounts payable and accrued liabilities		2,424			994
Decrease in accounts payable and accrued liabilities								(1,797	)		(331	)
Decrease in unearned rents		(614	)		(864	)		(4,188	)		(472	)

Net operating cash provided by continuing operations		92,625			79,012			26,064			27,673
Net operating cash provided by discontinued operations		835			587			—			53

Net cash provided by operating activities		93,460			79,599			26,064			27,726


Investing activities:
Acquisition of rental properties and other assets		(72,750	)		(63,282	)		(3,904	)		(16,725	)
Investment in consolidated joint ventures		(31,291	)		—
Net proceeds from sale of land		—			591
Investment in mortgage notes receivable								(12,299	)		(35,921	)
Investment in promissory notes receivable								(10,150	)		(5,000	)
Additions to properties under development		(28,755	)		(32,940	)		(4,554	)		(7,433	)
Investment in promissory note receivable		(16,036	)		(3,500	)
Investment in mortgage notes receivable		(177,621	)		(15,332	)

Net cash used in investing activities of continuing operations		(326,453	)		(114,463	)
Net proceeds from sale of real estate from discontinued operations		7,008			—

Net cash used in investing activities		(319,445	)		(114,463	)		(30,907	)		(65,079	)


Financing activities:
Proceeds from long-term debt facilities		543,344			290,286			51,153			100,415
Principal payments on long-term debt		(295,067	)		(236,114	)		(22,102	)		(42,095	)
Deferred financing fees paid		(1,417	)		(2,842	)		(833	)		(142	)
Net proceeds from issuance of common shares		465			46,824			71			197
Net proceeds from issuance of preferred shares		111,125			—
Redemption of preferred shares		(57,536	)		—
Impact of stock option exercises, net		(731	)		75			(127	)		(835	)
Purchase of common shares for treasury in conjunction with vesting of employees’ restricted stock		(1,448	)		(919	)
Purchase of common shares for treasury								(777	)		(1,448	)
Distributions paid to minority interests		(144	)		(467	)		—			(133	)
Dividends paid to shareholders		(71,924	)		(60,889	)		(26,955	)		(21,314	)

Net cash provided by financing activities		226,667			35,954			430			34,645
Effect of exchange rate changes on cash		662			39			(186	)		49


Net increase in cash and cash equivalents		1,344			1,129
Net decrease in cash and cash equivalents								(4,599	)		(2,659	)
Cash and cash equivalents at beginning of the period		9,414			6,546			15,170			9,414

Cash and cash equivalents at end of the period	$	10,758		$	7,675		$	10,571		$	6,755

ENTERTAINMENT PROPERTIES TRUST
Notes to Consolidated Financial Statements (Unaudited)

1. Organization

Description of Business

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

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. In addition, operating results for the ~~nine-month~~three-month period ended ~~September 30, 2007~~March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2007.~~2008.

The Company consolidates certain entities if it is deemed to be the primary beneficiary in a variable interest entity (“VIE”), as defined in FIN No. 46(R), “Consolidation of Variable Interest Entities” (“FIN 46R”). The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in FIN46R, or does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.

The consolidated balance sheet as of December 31, ~~2006~~2007 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2006~~2007 filed with the ~~SEC~~Securities and Exchange Commission (SEC) on February ~~28, 2007.~~26, 2008.

Revenue Recognition

Rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases. Base rent escalation on leases that are dependent upon increases in the Consumer Price Index (CPI) is recognized when known. Straight-line rent receivable is included in accounts receivable and was ~~$20.2~~$21.9 million and ~~$16.4~~$20.8 million at ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively. In addition, most of the Company’s tenants are subject to additional rents if gross revenues of the properties exceed certain thresholds defined in the lease agreements (percentage rents). Percentage rents are recognized at the time when specific triggering events occur as provided by the lease agreements. Percentage rents of $576 thousand and $474 thousand were recognized during the

~~by the lease agreements. Percentage rents of $1.6 million and $1.3 million were recognized during the nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. Lease termination fees are recognized when the related leases are canceled and the Company has no obligation to provide services to such former tenants. ~~Termination~~No termination fees ~~of $4.1 million~~ were recognized during the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2008 and 2007.

Concentrations of Risk

American Multi-Cinema, Inc. (AMC) is the lessee of a substantial portion (51%) of the megaplex theatre rental properties held by the Company (including joint venture properties) at ~~September 30, 2007~~March 31, 2008 as a result of a series of sale leaseback transactions pertaining to a number of AMC megaplex theatres. A substantial portion of the Company’s rental revenues (approximately ~~$71.3~~$24.4 million, or ~~52%~~50%, and ~~$70.0~~$23.3 million, or ~~56%~~54%, for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively) result from the rental payments by AMC under the leases, or its parent, AMC Entertainment, Inc. (AMCE), as the guarantor of AMC’s obligations under the leases. AMCE had total assets of $4.1 billion and $4.4 billion, total liabilities of $2.7 billion and $3.2 billion and total stockholders’ equity of $1.4 billion and $1.2 billion at March 29, 2007 and March 30, 2006, respectively. AMCE had net earnings of $134.1 million for the fifty-two weeks ended March 29, 2007 and net loss of $190.9 million for the fifty-two weeks ended March 30, 2006. In addition, AMCE had net earnings of $47.9 million for the thirty-nine weeks ended December 27, 2007 and a net loss of $25.4 million for the thirty-nine weeks eneded December 28, 2006. AMCE has publicly held debt and accordingly, its consolidated financial information is publicly available.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, approximately ~~$25.5~~$9.7 million, or 15%, and ~~$24.2~~$8.1 million, or ~~17%~~16%, of total revenue was derived from the Company’s four entertainment retail centers in Ontario, Canada. For the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, approximately ~~$34.0~~$14.0 million, or ~~20%~~21%, and ~~$30.5~~$10.6 million, or 21%, of our total revenue was derived from the Company’s four entertainment retail centers in Ontario, Canada combined with the mortgage financing interest related to the Company’s mortgage note receivable held in Canada and initially funded on June 1, 2005. The Company’s wholly owned subsidiaries that hold the Canadian entertainment retail centers, third party debt and mortgage note receivable represent approximately ~~$214.0~~$231.6 million or 23% and ~~$161.0~~$233.3 million or ~~19%~~23% of the Company’s net assets as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, respectively.

Share-Based Compensation

Share-based compensation is issued to employees of the Company pursuant to the Annual Incentive Program and the Long-Term Incentive Plan, and to Trustees for their service to the Company. Prior to May 9, 2007, all common shares and options to purchase common shares (share options) were issued under the 1997 Share Incentive Plan. The 2007 Equity Incentive Plan was approved by shareholders at the May 9, 2007 annual meeting and this plan replaces the 1997 Share Incentive Plan. Accordingly, all common shares and options to purchase common shares granted on or after May 9, 2007 are issued under the 2007 Equity Incentive Plan.

The Company accounts for share based compensation under the Financial Accounting Standard (SFAS) No. 123R “Share-Based Payment.” Share based compensation expense consists of share option expense, amortization of ~~restricted~~nonvested share grants and shares issued to Trustees for payment of their annual retainers. Share based compensation is included in general and administrative expense in the accompanying consolidated statements of income, and totaled ~~$2.4 million~~$996 thousand and ~~$4.5 million~~$781 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

The expense related to share options included in the determination of net income for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ was ~~$319~~$113 thousand and ~~$750~~$107 thousand, ~~(including $522 thousand in expense recognized related to unvested share options held by a retired executive at the time of his retirement),~~ respectively. The following assumptions were used in applying the Black-Scholes option pricing model at the grant dates: risk-free interest rate of ~~4.8%~~3.2% and 4.8% ~~to 5.0%~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, dividend yield of ~~5.2% to~~6.7% and 5.4% ~~and 5.8%~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, volatility factors in the expected market price of the Company’s common shares of ~~19.5% to 19.8%~~23.2% and ~~21.1%~~19.5% for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively, no expected forfeitures and an expected life of eight years. The Company uses historical data to estimate the expected life of the option and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Additionally, expected volatility is computed based on the average historical volatility of the Company’s publicly traded shares.

~~Restricted~~Nonvested Shares Issued to Employees

The Company grants ~~restricted~~nonvested shares to employees pursuant to both the Annual Incentive Program and the Long-Term Incentive Plan. The Company amortizes the expense related to the ~~restricted~~nonvested shares awarded to employees under the Long-Term Incentive Plan and the premium awarded under the ~~restricted~~nonvested share alternative of the Annual Incentive Program on a straight-line basis over the future vesting period ~~(usually three to~~(three or five years)~~, except for those unvested shares held by a retired executive which were fully expensed as of June 30, 2006.~~

. Total expense recognized related to all ~~restricted~~nonvested shares was ~~$1.9 million~~$795 thousand and ~~$3.6 million~~$634 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. The expense of $3.6 million for the nine months ended September 30, 2006 includes $852 thousand in expense related to unvested shares held by a retired executive at the time of his retirement, and $1.7 million in expense related to unvested shares from prior years related to the Annual Incentive Program.

Shares Issued to Trustees

The Company issues shares to Trustees for payment of their annual retainers. These shares vest immediately but may not be sold for a period of one year from the grant date. This expense is amortized by the Company on a straight-line basis over the year of service by the Trustees. Total expense recognized related to shares issued to Trustees was ~~$201~~$88 thousand and ~~$121~~$40 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

Reclassifications

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

Depreciation expense on rental properties was ~~$25.4~~$9.3 million and ~~$21.5~~$7.8 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

4. Unconsolidated Real Estate Joint Ventures

At ~~September 30, 2007,~~March 31, 2008, the Company had a ~~20.3%~~20.6%, 21.2% and ~~21.2%~~50.0% investment interest in ~~two~~three unconsolidated real estate joint ventures, Atlantic-EPR I, ~~and~~ Atlantic-EPR II and JERIT CS Fund I (CS Fund I), respectively. The Company accounts for its investment in these joint ventures under the equity method of accounting.

The Company recognized income of ~~$369~~$126 and ~~$346~~$120 (in thousands) from its investment in the Atlantic-EPR I joint venture during the first ~~nine~~three months of ~~2007~~2008 and ~~2006,~~2007, respectively. The Company also received distributions from Atlantic-EPR I of ~~$417~~$144 and ~~$398~~$136 (in thousands) during the first ~~nine~~three months of ~~2007~~2008 and ~~2006,~~2007, respectively. Unaudited condensed financial information for Atlantic-EPR I is as follows as of and for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ (in thousands):


	2007		2006		2008		2007
Rental properties, net	$	28,762		29,406	$	28,440		29,084
Cash		141		141		141		141
Long-term debt		15,886		16,231		15,701		16,057
Partners’ equity		12,917		13,214		12,777		13,063
Rental revenue		3,237		3,174		1,086		1,065
Net income		1,717		1,619		578		560

on loans secured by fixtures and equipment. The Credit Agreement provides for an aggregate advance rate of 65% based on the lesser of cost or appraised value. Term loans secured by real property may be drawn through March 14, 2010. These loans are amortized over a 25-year period and mature on the earlier of ten years after disbursement or the end of the related real property’s lease term. The equipment and fixture loans have a maturity date that is the earlier of ten years or the end of the related lease term and require full principal amortization over the term of the loan. The Credit Agreement contains an accordion feature whereby, subject to lender approval, the Company may obtain additional revolving credit and term loan commitments in an aggregate principal amount not to exceed $35.0 million. The initial disbursement under the Credit Agreement consisted of two term loans with an aggregate principal amount of approximately $9.5 million and maturity dates of December 1, 2017 and March 5, 2018. The Company simultaneously entered into two interest rate swap agreements that fixed the interest rates at a weighted average of 5.52% on these loans. Additionally, on March 24, 2007, the Company obtained $3.2 million of equipment loans that mature on December 1, 2017.

The net proceeds from the above-referenced loans were used to pay down outstanding indebtedness under the Company’s unsecured revolving credit facility.

6. Derivative Instruments

On March 13, 2008, the Company entered into two interest rate swap agreements to fix the interest rates on $9.5 million of the outstanding term loans described in Note 5. These agreements have notional amounts of $4.6 million and $4.9 million, termination dates of December 1, 2017 and March 5, 2018 and fixed rates of 5.51% and 5.53%.

Other expense for the three months ended March 31, 2008 includes $381 thousand of net realized losses and other income for the three months ended March 31, 2007 includes $13 thousand of net realized income, resulting from regular monthly settlements of foreign currency forward contracts. Additionally, interest expense, net for the three months ended March 31, 2008 includes $102 thousand of net realized losses resulting from regular monthly settlements of interest rate swaps.

5.7. Fair Value Disclosures

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative financial instruments

Currently, the Company uses interest rate swaps, foreign currency forwards and cross currency swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the

overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2008
(Unaudited, dollars in thousands)

Quoted Prices in

Significant

Active Markets

Other

Significant

Balance at

for Identical

Observable

Unobservable

March 31,

Description

Assets (Level I)

Inputs (Level 2)

Inputs (Level 3)

2008

Derivative financial instruments*

$—

(4,718

)

$—

(4,718

)

* Included in “Accounts payable and accrued liabilities” in the accompanying consolidated balance sheet.

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of March 31, 2008.

In February 2008, the FASB proposed a one-year deferral of fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. Accordingly, the Company’s adoption of this standard in 2008 was limited to financial assets and liabilities, which affects the valuation of the Company’s derivative contracts.

8. Earnings Per Share

The following table summarizes the Company’s common shares used for computation of basic and diluted earnings per share for the three months ended March 31, 2008 and 2007 (unaudited, amounts in thousands except per share information):


	Three Months Ended March 31, 2008
	Income			Shares		Per Share
	(numerator)			(denominator)		Amount
Basic earnings:
Income from continuing operations	$	27,122			27,843	$	0.97
Preferred dividend requirements		(5,611	)		—		(0.20	)

Income from continuing operations available to common shareholders		21,511			27,843		0.77
Effect of dilutive securities:
Share options		—			282		(0.01	)
Non-vested common share grants		—			66		—

Diluted earnings: Income from continuing operations	$	21,511			28,191	$	0.76


Income from continuing operations available to common shareholders	$	21,511			27,843	$	0.77
Income from discontinued operations		—			—		—

Income available to common shareholders	$	21,511			27,843	$	0.77
Effect of dilutive securities:
Share options		—			282		(0.01	)
Non-vested common share grants		—			66		—

Diluted earnings	$	21,511			28,191	$	0.76


	Three Months Ended March 31, 2007
	Income			Shares		Per Share
	(numerator)			(denominator)		Amount
Basic earnings:
Income from continuing operations	$	22,892			26,282	$	0.87
Preferred dividend requirements		(4,856	)		—		(0.18	)

Income from continuing operations available to common shareholders		18,036			26,282		0.69
Effect of dilutive securities:
Share options		—			447		(0.02	)
Non-vested common share grants		—			91		—

Diluted earnings: Income from continuing operations	$	18,036			26,820	$	0.67


Income from continuing operations available to common shareholders	$	18,036			26,282	$	0.69
Income from discontinued operations		18			—		—

Income available to common shareholders	$	18,054			26,282	$	0.69
Effect of dilutive securities:
Share options		—			447		(0.02	)
Non-vested common share grants		—			91		—

Diluted earnings	$	18,054			26,820	$	0.67

The additional 1.9 million common shares that would result from the conversion of the Company’s 5.75% Series C cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share for the three months ended March 31, 2008 and 2007 because the effect is anti-dilutive.

9. Equity Incentive Plans

All grants of common shares and options to purchase common shares were issued under the 1997 Share Incentive Plan prior to May 9, 2007, and under the 2007 Equity Incentive Plan on and after May 9, 2007. Under the 2007 Equity Incentive Plan, an aggregate of 950,000 common shares and options to purchase common shares, subject to adjustment in the event of certain capital events, may be granted. At ~~September 30, 2007,~~March 31, 2008, there were ~~934,240~~737,516 shares available for grant under the 2007 Equity Incentive Plan.

Share Options

Share options granted under both the 1997 Share Incentive Plan and the 2007 Equity Incentive Plan have exercise prices equal to the fair market value of a common share at the date of grant. The options may be granted for any reasonable term, not to exceed 10 years, and for employees typically become exercisable at a rate of 20% per year over a ~~five—~~five–year period. For Trustees, share options become exercisable upon issuance, however, the underlying shares cannot be sold within a one year period subsequent to ~~exercise.~~the grant date. The Company generally issues new common shares upon option exercise. A summary of the Company’s share option activity and related information is as follows:


						Weighted										Weighted
						Average										Average
	Number of			Option Price		Exercise		Number of			Option Price					Exercise
	Shares			Per Share		Price		Shares			Per Share					Price
Outstanding at December 31, 2006		981,673		$	14.00 - $43.75	$	28.33
Outstanding at
December 31, 2007									906,998		$	14.00	—	$	65.50	$	32.49
Exercised		(181,620	)		16.05 - 43.75		28.68		(44,996	)		19.30	—		42.46		28.15
Granted		106,945			60.03 - 65.50		64.15		76,033			47.20	—		47.20		47.20

Outstanding at September 30, 2007		906,998			14.00 - 65.50		32.49
Outstanding at
March 31, 2008									938,035			14.00	—		65.50		33.89

The following table summarizes exercisable options at ~~September 30, 2007:~~March 31, 2008:

Exercise Options Weighted avg. Weighted avg. Aggregate intrinsic
price range outstanding life remaining exercise price value (in thousands)
$14.00 - 19.99 190,141 2.9
20.00 - 29.99 244,837 5.2
30.00 - 39.99 55,195 6.5
40.00 - 49.99 50,237 8.2

540,410 4.8 $ 24.01 $ 14,476


Exercise	Options		Weighted avg.		Weighted avg.		Aggregate intrinsic
price range	outstanding		life remaining		exercise price		value (in thousands)
$14.00 — 19.99		189,141		2.4
20.00 — 29.99		273,716		4.7
30.00 — 39.99		68,063		6.0
40.00 — 49.99		79,244		7.7
50.00 — 59.99		—	—
60.00 — 69.99		27,393		8.9

		637,557		4.7	$	26.91	$	14,687

~~Restricted~~Nonvested Shares

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


				Weighted		Weighted					Weighted		Weighted
				Average		Average					Average		Average
	Number of			Grant Date		Life		Number of			Grant Date		Life
	Shares			Fair Value		Remaining			Shares			Fair Value		Remaining
Outstanding at December 31, 2006		169,554		$	39.50
Outstanding at
December 31, 2007									238,553		$	53.80
Granted		128,563			65.17				120,691			47.20
Vested		(59,564	)		37.61				(76,916	)		49.38

Outstanding at September 30, 2007		238,553			53.80		1.58
Outstanding at
March 31, 2008									282,328			52.18		1.95

original capital account of its Class B shares, or $2.25 million, third to City Center Group LLC to allow for a preferred return of 10% on the original capital account of its Class C shares, or $0.5 million, fourth to City Center Group LLC to allow for a preferred return of 10% on the original capital account of its Class D shares, or $0.5 million. The operating agreements provide several other priorities of cash flow related to return on and return of subsequent capital contributions that rank below the above four preferred returns. The final priority calls for the remaining cash flow to be distributed 66.67% to the Company’s Class A shares and 33.33% to City Center Group LLC’s Class C shares. If the cash flow of the White Plains LLCs is not sufficient to pay any of the preferred returns described above, the preferred returns remain undistributed, but are due upon a liquidation or refinancing event. Upon liquidation or refinancing, after all undistributed preferred returns and return of capital accounts are paid, any remaining cash is distributed 66.67% to the Company and 33.33% to City Center Group LLC.

Additionally, the Company loaned $20 million to Cappelli Group, LLC which is secured by the Cappelli Group, LLC’s Class B shares of the White Plains LLCs. The note has a stated maturity of May 8, 2027 and bears interest at the rate of 10%. Cappelli Group, LLC is only required to make cash interest payments on the $20 million note payable to the extent that they have received cash distributions on their Class B shares of the White Plains LLCs. The White Plains LLC’s are required to pay Cappelli Group, LLC’s Class B distributions directly to the Company to the extent there is accrued interest receivable on the $20 million note.

The Cappelli Group, LLC as well as the White Plains LLCs are VIEs and the Company has been determined to be the primary beneficiary of each of these VIEs. As further discussed below, the financial statements of these VIEs have been consolidated into the Company’s September 30, 2007 financial statements. The $20 million note between the Company and Cappelli Group, LLC and the related interest income and expense have been eliminated. Cappelli Group’s income statement for the nine months ended September 30, 2007 is presented below (in thousands):

Equity in losses of White Plains LLCs $ 177
Interest expense 811

Net loss $ 988

Pursuant to FIN 46R, the Company consolidated Cappelli Group LLC’s net loss of $988 thousand and recognized a corresponding amount of minority interest income for the nine months ended September 30, 2007 since the Company’s only variable interest in Cappelli Group LLC is debt and Cappelli Group LLC has sufficient equity to cover its cumulative net loss subsequent to the May 8, 2007 loan transaction with the Company. The Cappelli Group LLC’s equity, after the current year loss allocation, is $4.0 million and is reflected as minority interest in the Company’s consolidated balance sheet at September 30, 2007.

The Company also consolidated the net loss of the White Plains LLCs of $267 thousand for the nine months ended September 30, 2007 of which $90 thousand and $177 thousand was allocated to the Company and to Cappelli Group, LLC, respectively, based on relative cash distributions received from the White Plains LLCs. The $177 thousand of net loss allocated to Cappelli Group LLC has been eliminated in consolidation against Cappelli Group LLC’s corresponding equity in losses of the White Plains LLCs.

~~The following table shows the details of the Company’s investment and a detail of the net assets recorded in the consolidated balance sheet as of the May 8, 2007 acquisition date:~~

Cash paid for Class A Shares of the White Plains LLCs $ 10,475
Cash advanced to Capelli Group, LLC 20,000
Other cash acquistion related costs 816

Total investment $ 31,291

Rental properties $ 158,221
In-place leases 7,595
Other assets 1,504
Mortgage notes payable (119,740 )
Unearned rents (1,032 )
Accounts payable and accrued liabilities (14 )
Minority interest (15,243 )

Total net assets acquired $ 31,291

As of the May 8, 2007 acquisition date, the White Plains LLCs had real estate assets with a fair value of approximately $166.0 million (per a third party appraisal) which included $7.6 million of in-place leases and $0.5 million of net other assets. Amortization expense related to these in-place leases is computed using the straight-line method and was $247 thousand and $412 thousand for the three and nine months ended September 30, 2007, respectively. The weighted average remaining life of these in-place leases at September 30, 2007 was 10.0 years.

The outstanding mortgage debt on the property at the date of the acquisition totaled $119.7 million and consisted of two mortgage notes payable which approximated their fair values. The mortgage note payable to Union Labor Life Insurance Company had a balance of $114.7 million at the date of the acquisition. This note bears interest at 5.6% and requires monthly principal payments of $42 thousand plus interest through October 2009, and $83 thousand plus interest from November 2009 through the maturity date, with a final principal payment due at maturity on October 7, 2010 of $113.5 million. This note can be extended for an additional two to four years at the option of the borrower upon meeting certain conditions outlined in the loan agreement. The mortgage note payable to Empire State Department Corporation (ESDC) had a balance of $5.0 million at the date of the acquisition. This note bears interest at 5.0%, requires monthly payments of interest only and provides for the conversion from construction loan to a ten year permanent loan upon completion of construction. However, as of September 30, 2007, ESDC had not yet completed such conversion.

The Company has also committed to provide a $10.0 million revolving line of credit to City Center Group LLC. This note bears interest at 10%, requires monthly interest payments, and matures on May 8, 2017. The note is secured by rights to the economic interest of the Class C and Class D interests in the White Plains LLCs, and is personally guaranteed by the two shareholders of City Center Group LLC. The Company had advanced $6.0 million against this note at September 30, 2007.

~~7. Earnings Per Share~~

The following table summarizes the Company’s common shares used for computation of basic and diluted earnings per share for the three and nine months ended September 30, 2007 and 2006 (in thousands except per share information):

Three Months Ended September 30, 2007 Nine Months Ended September 30, 2007
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
Basic earnings:
Income from continuing operations $ 26,350 26,432 $ 1.00 $ 73,518 26,378 $ 2.79
Preferred dividend requirements (5,611 ) — (0.22 ) (15,701 ) — (0.60 )
Series A preferred share redemption costs — — — (2,101 ) — (0.08 )

Income from continuing operations available to common shareholders 20,739 26,432 0.78 55,716 26,378 2.11
Effect of dilutive securities:
Share options — 317 (0.01 ) — 383 (0.03 )
Non-vested common share grants — 75 — — 97 (0.01 )

Diluted earnings: Income from continuing operations $ 20,739 26,824 $ 0.77 $ 55,716 26,858 $ 2.07

Income from continuing operations available to common shareholders $ 20,739 26,432 $ 0.78 $ 55,716 26,378 2.11
Income from discontinued operations — — — 4,017 — 0.15

Income available to common shareholders $ 20,739 26,432 $ 0.78 $ 59,733 26,378 2.26
Effect of dilutive securities:
Share options — 317 (0.01 ) — 383 (0.03 )
Non-vested common share grants — 75 — — 97 (0.01 )

Diluted earnings $ 20,739 26,824 $ 0.77 $ 59,733 26,858 $ 2.22

Three Months Ended September 30, 2006 Nine Months Ended September 30, 2006
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
Basic earnings:
Income from continuing operations $ 20,663 26,298 $ 0.79 $ 60,406 26,093 $ 2.32
Preferred dividend requirements (2,916 ) — (0.12 ) (8,747 ) — (0.34 )
Series A preferred share redemption costs — — — — — —

Income from continuing operations available to common shareholders 17,747 26,298 0.67 51,659 26,093 1.98
Effect of dilutive securities:
Share options — 369 — — 322 (0.02 )
Non-vested common share grants — 102 (0.01 ) — 96 (0.01 )

Diluted earnings: Income from continuing operations $ 17,747 26,769 $ 0.66 $ 51,659 26,511 $ 1.95

Income from continuing operations available to common shareholders $ 17,747 26,298 $ 0.67 $ 51,659 26,093 1.98
Income from discontinued operations 53 — 0.01 488 — 0.02

Income available to common shareholders $ 17,800 26,298 $ 0.68 $ 52,147 26,093 2.00
Effect of dilutive securities:
Share options — 369 (0.01 ) — 322 (0.02 )
Non-vested common share grants — 102 (0.01 ) — 96 (0.01 )

Diluted earnings $ 17,800 26,769 $ 0.66 $ 52,147 26,511 $ 1.97

The additional 1.9 million common shares that would result from the conversion of the Company’s Series C convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share for the three and nine months ended September 30, 2007 because the effect is antidilutive.

~~8. Investments in Mortgage Notes~~

On March 13, 2007, a wholly-owned subsidiary of the Company entered into a secured mortgage loan agreement for $93.0 million with SVV I, LLC for the development of a water-park anchored entertainment village. The Company advanced $85.6 million during the nine months ended September 30, 2007 under this agreement. The secured property is approximately 368 acres of development land located in Kansas City, Kansas. The carrying value of this mortgage note receivable at September 30, 2007 was $86.2 million, including related accrued interest receivable of $661 thousand. This loan is guaranteed by the Schlitterbahn New Braunfels Group (Bad-Schloss, Inc., Waterpark Management, Inc., Golden Seal Investments, Inc., Liberty Partnership, Ltd., Henry Condo I, Ltd., and Henry-Walnut, Ltd.) and has a maturity date of March 12, 2008. Monthly interest payments are made to the Company and the unpaid principal balance bears interest at LIBOR plus 3.5%. SVV I, LLC is a VIE, but it was determined that the Company was not the primary beneficiary

~~of this VIE. The Company’s maximum exposure to loss associated with SVVI, LLC is limited to the Company’s outstanding mortgage note and related accrued interest receivable.~~

On April 4, 2007, a wholly-owned subsidiary of the Company entered into two secured first mortgage loan agreements totaling $73.5 million with Peak Resorts, Inc. (“Peak”). The Company advanced $56.6 million during the nine months ended September 30, 2007 under these agreements. The loans are secured by two ski resorts located in Vermont and New Hampshire. Mount Snow is approximately 2,378 acres and is located in both West Dover and Wilmington, Vermont. Mount Attitash is approximately 1,250 acres and is located in Bartlett, New Hampshire. The carrying value of these mortgage notes at September 30, 2007 was $56.6 million with no related accrued interest receivable. The loans have a maturity date of April 3, 2027 and the unpaid principal balance initially bears interest at 10%. These notes currently require Peak to fund debt service reserves annually by April 30^th for the amount of the upcoming year’s debt service. Monthly interest payments are transferred to the Company from these debt service reserves which had a balance of $2.9 million at September 30, 2007.

Additionally, on April 4, 2007, a wholly-owned subsidiary of the Company entered into a third secured first mortgage loan agreement for $25.0 million with Peak for the further development of Mount Snow. The loan is secured by approximately 696 acres of development land. The Company advanced the full amount of the loan during April of 2007. The carrying value of this mortgage note receivable at September 30, 2007 was $26.3 million, including related accrued interest receivable of $1.3 million. The loan has a maturity date of April 2, 2010 at which time the unpaid principal balance and all accrued interest is due. The unpaid principal balance bears interest at 10%.

During the three months ended September 30, 2007, a wholly-owned subsidiary of the Company invested an additional $3.4 million Canadian ($3.2 million U.S.) in the mortgage note receivable from Metropolis Limited Partnership (the Partnership) related to the construction of Toronto Life Square, a 13 level entertainment retail center in downtown Toronto. On October 19, 2007, the Company advanced $6.2 million Canadian ($6.4 million U.S.) to the Partnership and the Company anticipates advancing an additional $7 to $12 million Canadian prior to the end of 2008. Consistent with the previous advances on this project, each advance will have a five year stated term and bear interest at 15%. A bank has agreed to provide the Partnership first mortgage construction financing of up to $122 million Canadian, and it is anticipated that the project will be completed in 2008 at a total cost of approximately $315 million Canadian.

Additionally, during the three months ended September 30, 2007, a wholly-owned subsidiary of the Company posted additional irrevocable stand-by letters of credit related to the Toronto Life Square project. As of October 31, 2007, the letters of credit related to this project totaled $13.2 million, of which at least $5 million is expected to be drawn upon and added to the Company’s mortgage note receivable by May 31, 2008. The remaining letters of credit are expected to be cancelled or drawn upon during 2008 in conjunction with the completion and permanent financing of the Toronto Life Square project. Interest accrues on these outstanding letters of credit at a rate of 12% (15% if drawn upon). The Company also received an origination fee of $250 thousand Canadian ($237 thousand U.S.) in connection with this financing activity, and the fee is being amortized over the remaining term of the loan.

~~9. Mortgage Notes Payable~~

~~On February 21, 2007, a wholly-owned subsidiary of the Company obtained a non-recourse mortgage loan of $11.6 million. This mortgage is secured by a theatre property located in Biloxi, Mississippi.~~

~~The mortgage loan bears interest at 6.06%, matures on March 1, 2017 and requires monthly principal and interest payments of $75 thousand with a final principal payment at maturity of $9.0 million.~~

On March 23, 2007, a wholly-owned subsidiary of the Company obtained a non-recourse mortgage loan of $11.9 million. This mortgage is secured by a theatre property located in Fresno, California. The mortgage loan bears interest at 6.07%, matures on April 6, 2017 and requires monthly principal and interest payments of $77 thousand with a final principal payment at maturity of $9.2 million.

On April 18, 2007, a wholly-owned subsidiary of the Company obtained three non-recourse mortgage loans totaling $20.3 million. Each of these mortgages are secured by a theatre property, bear interest at a rate of 5.95% per year, and mature on May 1, 2017. These mortgages require monthly principal and interest payments totaling $130 thousand with final principal payments at maturity totaling $15.8 million.

On April 19, 2007, a wholly-owned subsidiary of the Company obtained two non-recourse mortgage loans totaling $34.7 million. Each of these mortgages are secured by a theatre property, bear interest at a rate of 5.73% per year, and mature on May 1, 2017. These mortgages require monthly principal and interest payments totaling $218 thousand with final principal payments at maturity totaling $26.7 million.

On July 30, 2007, a wholly-owned subsidiary of the Company obtained two non-recourse mortgage loans totaling $28.0 million. Each of these mortgages are secured by a theatre property located in Chattanooga, Tennessee and Leawood, Kansas, bear interest at a rate of 5.86% per year, and mature on August 1, 2017. These mortgages require monthly principal and interest payments totaling $178 thousand with final principal payments at maturity totaling $21.7 million.

On September 19, 2007, a wholly-owned subsidiary of the Company obtained a non-recourse mortgage loan of $26.2 million. This mortgage is secured by a theatre property located in Houston, Texas. The mortgage loan bears interest at 6.57%, matures on October 1, 2012, and requires monthly principal and interest payments of $196 thousand with a final principal payment at maturity of $22.7 million.

On September 24, 2007, a wholly-owned subsidiary of the Company obtained a non-recourse mortgage loan of $22.2 million. This mortgage is secured by a theatre property located in Dallas, Texas. The mortgage loan bears interest at 6.73%, matures on October 1, 2012, and requires monthly principal and interest payments of $169 thousand with a final principal payment at maturity of $19.3 million.

~~The net proceeds from all of the above mortgage loans were used to pay down the Company’s unsecured revolving credit facility.~~

10. ~~Amendment of Unsecured Revolving Credit Facility~~

On April 18, 2007, the Company amended its unsecured revolving credit facility. The amendment allows additional assets, subject to certain limitations, to be included in the Company’s borrowing base, and provides a more favorable valuation of the Company’s megaplex theatres and entertainment related retail assets in the calculation of the borrowing base and the leverage ratio. Additionally, the amendment relaxes the covenants that limit the Company’s investment in certain types of assets, raises its capacity to issue letters of credit and provides the Company with the flexibility to incur other unsecured recourse indebtedness, subject to certain limitations, beyond the unsecured revolving

~~credit facility. The size, term and pricing of the unsecured revolving credit facility were not impacted by the amendment.~~

~~11. Property Acquisitions and Disposition~~

On April 30, 2007, a wholly-owned subsidiary of the Company purchased a 35 acre vineyard and winery facility in Hopland, California, and simultaneously leased this property to Rb Wine Associates, LLC. The acquisition price for the property was approximately $5.9 million and it is leased under a long-term triple-net lease. Subsequent to the initial acquisition, the Company has invested an additional $3.7 million in this project.

During the three months ended June 30, 2007, a wholly-owned subsidiary of the Company completed development of a megaplex theatre property located in Panama City, Florida. The Grand 16 Theatre at Pier Park is operated by Southern Theatres and was completed for a total development cost (including land and building) of approximately $17.6 million. This theatre is leased under a long-term triple-net lease.

On June 7, 2007, a wholly-owned subsidiary of the Company sold a parcel that included two leased properties adjacent to the Company’s megaplex theatre in Pompano, Florida and the related development rights to a developer group for $7.7 million. Accordingly, the Company recognized a gain on sale of real estate of $3.2 million and recognized development fees of $0.7 million during the three months ended June 30, 2007. For further detail on this disposition, see Note 15 to the consolidated financial statements in this Form 10-Q.

On August 1, 2007, a wholly-owned subsidiary of the Company purchased a 60 acre vineyard and winery facility in Paso Robles, California, and simultaneously leased this property to Sapphire Wines, LLC. The acquisition price for the property was approximately $21.0 million and it is leased under a long-term triple-net lease. Additionally, on August 1, 2007, a wholly-owned subsidiary of the Company entered into a loan agreement for $5.0 million with Sapphire Wines, LLC. The loan has a maturity date of February 1, 2008 at which time the unpaid principal balance is due. The unpaid principal balance bears interest at 9% and is payable monthly.

On August 14, 2007, a wholly-owned subsidiary of the Company purchased the land and winery facilities associated with three vineyards. The total purchase price consisted of approximately 225 acres of land and 72 thousand square feet of winery facilities located in Pope Valley, Lockeford, and Clements, California. The properties were simultaneously leased to CE2V Winery, LLC, Lockeford Winery, LLC, Crystal Valley Cellars, LLC and Cosentino Winery LLC. The acquisition price for the property was approximately $20.5 million and it is leased under a long-term triple-net lease.

During the three months ended September 30, 2007, a wholly-owned subsidiary of the Company completed development of a megaplex theatre property located in Kalispell, Montana. The Stadium 14 Cinema is operated by Signature Theatres and was completed for a total development cost (including land and building) of approximately $9.8 million. This theatre is leased under a long-term triple-net lease.

~~12. Issuance of Series D Preferred Shares~~

On May 25, 2007, the Company issued 4.6 million 7.375% Series D Cumulative Redeemable Preferred Shares (“Series D Preferred Shares”) in a registered public offering for net proceeds of approximately $111.1 million, after expenses. The Company will pay cumulative dividends on the

Series D Preferred Shares from the date of original issuance in the amount of $1.844 per share each year, which is equivalent to 7.375% of the $25 liquidation preference per share. Dividends on the Series D Preferred Shares are payable quarterly in arrears, and were first payable on July 16, 2007 with a pro-rated quarterly payment of $0.1844 per share. The Company may not redeem the Series D Preferred Shares before May 25, 2012, except in limited circumstances to preserve the Company’s REIT status. On or after May 25, 2012, the Company may, at its option, redeem the Series D Preferred Shares in whole at any time or in part from time to time, by paying $25 per share, plus any accrued and unpaid dividends up to and including the date of redemption. The Series D Preferred Shares generally have no stated maturity, will not be subject to any sinking fund or mandatory redemption, and are not convertible into any of the Company’s other securities. Owners of the Series D Preferred Shares generally have no voting rights, except under certain dividend defaults. The net proceeds from this offering were used to redeem the Company’s 9.50% Series A Cumulative Redeemable Preferred Shares and to pay down the Company’s unsecured revolving credit facility.

~~13. Redemption of Series A Preferred Shares~~

On May 29, 2007, the Company completed the redemption of all 2.3 million outstanding 9.50% Series A Cumulative Redeemable Preferred Shares. The shares were redeemed at a redemption price of $25.39 per share. This price is the sum of the $25.00 per share liquidation preference and a quarterly dividend per share of $0.59375 prorated through the redemption date. In conjunction with the redemption, the Company recognized both a non-cash charge representing the original issuance costs that were paid in 2002 and also other redemption related expenses. The aggregate reduction to net income available to common shareholders was approximately $2.1 million ($0.08 per fully diluted common share) for the nine months ended September 30, 2007.

~~14. Derivative Instruments~~

On June 1, 2007, the Company entered into a cross currency swap with a notional value of $76.0 million Canadian dollars (CAD) and $71.5 million U.S. The swap calls for monthly exchanges from January 2008 through February 2014 with the Company paying CAD based on an annual rate of 17.16% of the notional amount and receiving U.S. dollars based on an annual rate of 17.4% of the notional amount. There is no initial or final exchange of the notional amounts. The net effect of this swap is to lock in an exchange rate of $1.05 CAD per U.S. dollar on approximately $13 million of annual CAD denominated cash flows. The Company had previously entered into forward contracts with monthly settlement dates ranging from October 2007 through March 2007. These contracts have a notional value of $7.6 million CAD and an average exchange rate of 1.15 CAD per U.S. dollar. The Company designated both the cross currency swap and the forward contracts as cash flow hedges.

Additionally, on June 1, 2007, the Company entered into a forward contract with a notional amount of $100 million CAD and a February 2014 settlement date. The exchange rate of this forward contract is approximately $1.04 CAD per U.S. dollar. The Company designated this forward contract as a net investment hedge.

Other expense for the three and nine months ended September 30, 2007 includes $543 thousand and $874 thousand of net realized losses, respectively, resulting from regular monthly settlements of foreign currency forward contracts.

~~15.~~ Discontinued Operations

Included in discontinued operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2007 ~~and 2006~~ is one parcel including two leased properties sold in June of 2007, aggregating 107 thousand square feet.

The operating results relating to assets sold are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2007 2006 2007 2006
Rental revenue $ — $ 98 $ 186 $ 314
Tenant reimbursements — 75 64 111
Other income — — 700 357

Total revenue — 173 950 782

Property operating expense — 85 115 195

Depreciation and amortization — 35 58 99

Income before gain on sale of real estate — 53 777 488

Gain on sale of real estate — — 3,240 —

Net income $ — $ 53 $ 4,017 $ 488

~~For further detail on this disposition, see Note 11 to the consolidated financial statements in this Form 10-Q.~~


	Three Months
	Ended March 31,
	2007
Rental revenue	$	97
Tenant reimbursements		6
Other income		—

Total revenue		103

Property operating expense		50
Depreciation and amortization		35


Income before gain on sale of real estate		18

Gain on sale of real estate		—


Net income	$	18

~~16. Staff Accounting Bulletin No. 108 (SAB 108)~~

In September 2006, the SEC released SAB 108. SAB 108 permitted the Company to adjust for the cumulative effect of errors relating to prior years previously considered to be immaterial by adjusting the opening balance of retained earnings in the year of adoption. SAB 108 also required the adjustment of any prior quarterly financial statements within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments did not require previously filed reports with the SEC to be amended.

Effective January 1, 2006, the Company adopted SAB 108. In accordance with SAB 108, the Company increased distributions in excess of net income as of January 1, 2006, and its rental revenue and net income for the year ended December 31, 2006 for the recognition of straight-line rental revenues and net receivables as further described below. SFAS No. 13 “Accounting for Leases” requires rental income that is fixed and determinable to be recognized on a straight-line basis over the minimum term of the lease. Certain leases executed or acquired between 1998 and 2003 contain rental income provisions that are fixed and determinable yet straight line revenue recognition in accordance with SFAS No. 13 was not applied. Accordingly, the implementation of SAB 108 corrects the revenue recognition related to such leases. The impact of this adjustment for the three and nine months ended September 30, 2006 is summarized below (dollars in thousands, except per share data):

Previously
Reported Adjustment As Adjusted
For the three months ended September 30, 2006

Rental revenue 41,019 * 343 41,362
Net income 20,373 343 20,716
Net income available to common shareholders 17,457 343 17,800
Diluted net income per common share 0.65 0.01 0.66

For the nine months ended September 30, 2006

Rental revenue 124,413 * 1,029 125,442
Net income 59,865 1,029 60,894
Net income available to common shareholders 51,118 1,029 52,147
Diluted net income per common share 1.93 0.04 1.97


*		~~Previously reported rental revenue has been reduced by rental revenue related to discontinued operations. See Note 15 to the consolidated financial statements~~ ~~in this Form 10-Q.~~

~~17.~~11. Other Commitments and Contingencies

As of ~~September 30, 2007,~~March 31, 2008, the Company had ~~two~~one theatre development ~~projects~~project under construction for which it has agreed to finance the development costs. ~~These theatres are~~The theatre is expected to have a total of 3012 screens and ~~their~~the development costs are expected to be approximately ~~$25.6~~$13.2 million. Through ~~September 30, 2007,~~March 31, 2008, the Company has invested ~~$7.6~~$1.4 million in ~~these projects,~~this project, and has commitments to fund approximately ~~$18.0~~$11.8 million of additional improvements. Development costs are advanced by the Company in periodic draws. If the Company determines that construction is not being completed in accordance with the terms of the development agreement, the Company can discontinue funding construction draws. The Company has agreed to lease the ~~theatres~~theatre to the ~~operators~~operator at pre-determined rates.

The Company held a 50% ownership interest in Suffolk Retail LLC (Suffolk) which is developing additional retail square footage adjacent to one of the Company’s megaplex theatres in Suffolk, Virginia. The Company’s joint venture partner is the developer of the project and Suffolk has committed to pay the developer a development fee of $1.2 million of which $.8 million has been paid through March 31, 2008.

The Company has provided a guarantee of the payment of certain economic development revenue bonds totaling $22.0 million for which the Company earns a fee at an annual rate of 1.75% over the 30 year term of the bond. The Company evaluated this guarantee in connection with the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). Based on certain criteria, FIN 45 requires a guarantor to record an asset and a liability at inception. Accordingly, the Company has recorded approximately $4.0 million as a deferred asset included in accounts receivable and approximately $4.0 million included in other liabilities in the accompanying consolidated balance sheets as of March 31,

2008 and December 31, 2007 which represents management’s best estimate of the fair value of the guarantee at inception which will be realized over the term of the guarantee. No amounts have been accrued as a loss contingency related to this guarantee because payment by the Company is not probable.

The Company has certain unfunded commitments related to its mortgage note investments that it may be required to fund in the future. The Company is generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of its direct control. As of March 31, 2008, the Company had four mortgage notes receivable with unfunded commitments totaling approximately $87.6 million. If such commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

~~18.~~12. Subsequent Events

On ~~October 3, 2007,~~April 2, 2008, the Company acquired, through a wholly-owned subsidiary, the remaining 50.0% ownership interest in CS Fund I for a purchase price of approximately $39.5 million from its partner, JERIT Fund I Member. Upon completion of this transaction, CS Fund I became a wholly-owned subsidiary of the ~~Company obtained a non-recourse mortgage loan of $27.0 million. This mortgage is secured by a theatre property located in Chicago, Illinois.~~Company. The mortgage loan bears interest at 6.63%, matures on November 1, 2012, and requires monthly principal and interest payments of $203 thousand with a final principal payment at maturity of $23.4 million. The net proceeds from this loan were used to pay down the Company’s unsecured revolving credit facility.

~~On October 15, 2007,~~member purchase agreement provides that the Company ~~closed on~~shall pay JERIT Fund I Member a ~~public offering~~monthly asset management fee of 1,400,000 common shares at $54.00 per share. Total net proceeds to the Company after expenses were approximately $73.9 million and were used to pay down the Company’s unsecured revolving credit facility.

~~On October 26, 2007, a wholly-owned subsidiary~~1.875% of the ~~Company obtained a term loan of $120 million. This loan is secured by a borrowing base that currently~~monthly rent for the public charter school properties, for the six month period following the closing. The membership purchase agreement also contains ~~primarily non-theatre assets and is recourse~~an option pursuant to ~~the Company. This loan bears~~which JERIT Fund I Member may re-acquire its 50% interest ~~at LIBOR plus 175 basis points and has a four year term expiring~~ in 2011 with a one year extension available at the Company’s option. Interest is payable monthly and principal payments of $300 thousand are required quarterly with a final principal payment at maturity of $115.2 million. The net proceeds from this loan were used to pay down the Company’s unsecured revolving credit facility and the balance was invested in interest bearing money market accounts consistent with the Company’s qualification as a REIT under the Internal Revenue Code.

On October 30, 2007, a wholly-owned subsidiary of the Company entered into a secured first mortgage loan agreement for $31.0 million with Peak. The loan is secured by seven ski resorts located in Missouri, Indiana, Ohio and Pennsylvania with a total of approximately 506 acres. The loan has a maturity date of October 30, 2027 and initially bears interest at 9.25%.

~~On October 30, 2007, a wholly owned subsidiary of the Company acquired a 50% ownership interest in JERIT~~ CS Fund I ~~(CS Fund I), a Delaware limited liability company, in exchange for $39.2 million.~~within six months after the acquisition of such interest by the Company. CS Fund I currently owns 12 charter public school properties located in Nevada, Arizona, Ohio, Georgia, Missouri, Michigan, Florida and Washington D.C. and leases them under a long-term triple net master lease. ~~Imagine Schools, Inc. operates~~

On April 2, 2008, the ~~charter~~Company issued 3,450,000 shares (including the exercise of the over-allotment option of 450,000 shares) of 9.0% Series E cumulative convertible preferred shares (“Series E preferred shares”) in a registered public ~~schools~~offering for net proceeds of approximately $83.4 million, after underwriting discounts and ~~guarantees~~expenses. The Company will pay cumulative dividends on the ~~lease payments.~~Series E preferred shares from the date of original issuance in the amount of $2.25 per share each year, which is equivalent to 9.0% of the $25 liquidation preference per share. The Company does not have the right to redeem the Series E preferred shares except in limited circumstances to preserve the Company’s ~~partner in CS Fund I~~REIT status. The Series E preferred shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption. The Series E preferred shares are convertible, at the holder’s option, into the Company’s common shares at an initial conversion rate of 0.4512 common shares per Series E preferred share, which is ~~JERIT CS Fund I Member, and it~~equivalent to an initial conversion price of $55.41 per common share. This conversion ratio may increase over time upon certain specified triggering events including if the Company’s common share dividend exceeds a certain quarterly threshold which will ~~serve as~~initially be set at $0.84 per common share.

Also, on April 2, 2008, the ~~managing member. JERIT CS Fund I Member is~~Company issued pursuant to a ~~wholly-owned subsidiary~~registered public offering 2,415,000 (including the exercise of ~~JER Investors Trust Inc., a publicly traded real estate investment trust. Cash distributions will be made~~the over-allotment option of 315,000 shares) common shares at $48.18 per share. Total net proceeds to the ~~partners of CS Fund I based on their respective ownership interests. As~~Company after underwriting discounts and expenses were approximately $111.2 million.

The proceeds from both of the ~~October 30, 2007 purchase date,~~above public offerings were used to pay down the Company’s unsecured revolving credit facility, to fund the CS Fund I ~~had no significant liabilities.~~purchase described above and remaining net proceeds were invested in interest-bearing accounts and short-term interest-bearing securities which are consistent with the qualification as a REIT under the Internal Revenue Code.

Item 2.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 Quarterly Report on Form 10-Q. The forward-looking statements included in this discussion and elsewhere in this Quarterly Report on Form 10-Q involve risks and uncertainties, including anticipated financial performance, business prospects, industry trends, shareholder returns, performance of leases by tenants, performance on loans to customers 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 Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2006~~2007 filed with the SEC on February ~~28, 2007,~~26, 2008, and, to the extent applicable, our Quarterly Reports on Form 10-Q.

Overview

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. As of ~~September 30, 2007, we had invested approximately $1.8~~March 31, 2008, our total assets exceeded $2.1 billion, ~~(before accumulated depreciation)~~and included investments in 7879 megaplex theatre properties (including four joint venture properties) and various restaurant, retail, entertainment, destination recreational and specialty properties located in 26 states and Ontario, Canada. As of ~~September 30, 2007,~~March 31, 2008, we had invested approximately ~~$27.4~~$21.3 million in development land and construction in progress for real-estate ~~development. Also, as of September 30, 2007, we had invested~~development and approximately ~~US $277.5~~$339.0 million (including accrued interest) in mortgage financing for entertainment ~~recreation~~ and ~~specialty~~recreational properties. Also, as of March 31, 2008, we had invested approximately $39.5 million in a 50% ownership interest of a joint venture which owns 12 public charter schools. As further discussed in Note 12 to the consolidated financial statements in this Quarterly Report on Form 10-Q, on April 2, 2008, we acquired the remaining 50% interest in this joint venture.

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 typically 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 and mortgage notes. We are self-administered and managed by our Board of 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~~three-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 and our~~facilities, term loan facilities and 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 ~~September 30, 2007,~~March 31, 2008, we have also entered into four joint ventures formed to own and lease single properties and one joint venture formed to own and lease multiple 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~~or 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 the remainder of ~~2007.~~2008.

Critical Accounting Policies

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 consolidation, revenue recognition, depreciable lives of the real estate, the valuation of real estate, accounting for real estate acquisitions and estimating reserves for uncollectible receivables and mortgage notes receivable. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

Consolidation

We consolidate certain entities if we are deemed to be the primary beneficiary in a variable interest entity (VIE), as defined in FIN No. 46(R), “Consolidation of Variable Interest Entities” (FIN46R). The equity method of accounting is applied to entities in which we are not the primary beneficiary as defined in FIN46R, or do not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.

Revenue Recognition

Rents that are fixed and determinable are recognized on a straight-line basis over the minimum terms of the leases. Base rent escalation 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

Impairment of Real Estate Values

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 the first ~~nine~~three months of ~~2007.~~2008. 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 the first ~~nine~~three months of ~~2007.~~2008.

Real Estate Acquisitions

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 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.

Allowance for Doubtful Accounts

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.

Mortgage Notes and ~~Related Accrued Interest~~Other Notes Receivable

Mortgage notes and other notes receivable, including related accrued interest receivable, ~~consists solely~~consist of loans that we originated and the related accrued and unpaid interest income as of the balance sheet date. Mortgage notes and other notes receivable are initially recorded at the amount advanced to the borrower and we defer certain loan origination and commitment fees, net of certain origination costs, and amortize them over the term of the related loan. We evaluate the collectibility of both interest and principal for each loan to determine whether it is impaired. A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the value of the underlying collateral if the loan is collateralized. Interest income on performing loans is accrued as earned. Interest income on impaired loans is recognized on a cash basis.

Recent Developments

Debt Financing

On ~~February 21, 2007,~~January 11, 2008, we obtained a non-recourse mortgage loan of ~~$11.6~~$17.5 million. This mortgage is secured by a theatre property located in ~~Biloxi, Mississippi.~~Garland, Texas. The mortgage loan bears interest at ~~6.06%~~6.19%, matures on ~~March~~February 1, ~~2017~~2018, and requires monthly principal and interest payments of ~~$75~~$127 thousand with a final principal payment at maturity of ~~$9.0~~$11.6 million.

On March ~~23,~~13, 2008, a wholly-owned subsidiary that holds our vineyard and winery assets entered into a $65.0 million term loan and revolving credit facility. The credit facility is evidenced by a Credit Agreement dated as of March 4, 2008 and bears interest at LIBOR plus 1.5% on loans secured by real property and LIBOR plus 1.75% on loans secured by fixtures and equipment. The Credit Agreement provides for an aggregate advance rate of 65% based on the lesser of cost or appraised value. Term loans secured by real property may be drawn through March 14, 2010. These loans are amortized over a 25-year period and mature on the earlier of ten years after disbursement or the maturity of the related real property lease. The equipment and fixture loans have a maturity date that is the earlier of ten years or the maturity of the related lease and require full principal amortization over the term of the loan. The Credit Agreement contains an accordion feature whereby, subject to lender approval, we may obtain additional revolving credit and term loan commitments in an aggregate principal amount not to exceed $35.0 million. The initial disbursement under the Credit Agreement consisted of two term loans with an aggregate principal amount of approximately $9.5 million and maturity dates of December 1, 2017 and March 5, 2018. We simultaneously entered into two interest rate swap agreements that fixed the interest rates at a weighted average of 5.52% on these loans. Additionally, on March 24, 2007, we obtained ~~a non-recourse mortgage loan~~$3.2 million of ~~$11.9 million. This mortgage is secured by a theatre property located in Fresno, California.~~ equipment loans that mature on December 1, 2017.

The ~~mortgage loan bears interest at 6.07%, matures on April 6, 2017~~net proceeds from the above loans were used to pay down outstanding indebtedness under our unsecured revolving credit facility.

Issuance of Series E Preferred Shares and ~~requires monthly principal and interest payments of $77 thousand with a final principal payment at maturity of $9.2 million.~~Common Shares

On April ~~18, 2007,~~2, 2008, we ~~obtained three non-recourse mortgage loans totaling $20.3 million. Each~~issued 3,450,000 (including exercise of ~~these mortgages~~over-allotment option of 450,000 shares) 9.0% Series E cumulative convertible preferred shares (“Series E preferred shares”) at $25.00 per share in a registered public offering for net proceeds of approximately $83.4 million, after underwriting discounts and expenses. We will pay cumulative dividends on the Series E preferred shares from the date of original issuance in the amount of $2.25 per share each year, which is equivalent to 9.0% of the $25 liquidation preference per share. We do not have the right to redeem the Series E preferred shares except in limited circumstances to preserve our REIT status. The Series E preferred shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption. The Series E preferred shares are ~~secured by a theatre property, bear interest~~convertible, at the holder’s option, into our common shares at an ~~interest~~initial conversion rate of ~~5.95%~~0.4512 common shares per ~~year,~~Series E preferred share, which is equivalent to an initial conversion price of $55.41 per common share. This conversion ratio may increase over time upon certain specified triggering events including if our common share dividend exceeds a certain quarterly threshold which will initially be set at $0.84 per common share.

Additionally, on April 2, 2008, we issued 2,415,000 common shares (including exercise of over-allotment option of 315,000 shares) at $48.18 per share in a registered public offering. Total net proceeds after underwriting discounts and ~~mature on May 1, 2017. These mortgages require monthly principal and interest payments totaling $130 thousand with final principal payments at maturity totaling $15.8~~expenses were approximately $111.2 million.

On April 19, 2007, we obtained two non-recourse mortgage loans totaling $34.7 million. Each of these mortgages are secured by a theatre property, bear interest at an interest rate of 5.73% per year, and mature on May 1, 2017. These mortgages require monthly principal and interest payments totaling $218 thousand with final principal payments at maturity totaling $26.7 million.

On July 30, 2007, we obtained two non-recourse mortgage loans totaling $28.0 million. Each of these mortgages is secured by a theatre property located in Chattanooga, Tennessee and Leawood, Kansas, bear interest at a rate of 5.86% per year, and mature on August 1, 2017. These mortgages require monthly principal and interest payments totaling $178 thousand with final principal payments at maturity totaling $21.7 million.

2926

~~On September 19, 2007, we obtained a non-recourse mortgage loan of $26.2 million. This mortgage is secured by a theatre property located in Houston, Texas.~~ The ~~mortgage loan bears interest at 6.57%, matures on October 1, 2012, and requires monthly principal and interest payments of $196 thousand with a final principal payment at maturity of $22.7 million.~~

On September 24, 2007, we obtained a non-recourse mortgage loan of $22.2 million. This mortgage is secured by a theatre property located in Dallas, Texas. The mortgage loan bears interest at 6.73%, matures on October 1, 2012, and requires monthly principal and interest payments of $169 thousand with a final principal payment at maturity of $19.3 million.

On October 3, 2007, we obtained a non-recourse mortgage loan of $27.0 million. This mortgage is secured by a theatre property located in Chicago, Illinois. The mortgage loan bears interest at 6.63%, matures on November 1, 2012, and requires monthly principal and interest payments of $203 thousand with a final principal payment at maturity of $23.4 million.

On October 26, 2007, we obtained a term loan of $120 million. This loan is secured by a borrowing base that currently contains primarily non-theatre assets and is recourse to us. This loan bears interest at LIBOR plus 175 basis points and has a four year term expiring in 2011 with a one year extension available at our option. Interest is payable monthly and principal payments of $300 thousand are required quarterly with a final principal payment at maturity of $115.2 million.

~~The net~~ proceeds from ~~all~~both of the above ~~loans~~offerings were used to pay down our unsecured revolving credit facility, orto fund the CS Fund I membership interest purchase (as described in Note 12 to the consolidated financial statements in this Quarterly Report on Form 10-Q), and the remaining net proceeds were invested in ~~interest bearing money market~~interest-bearing accounts and short-term interest-bearing securities which are consistent with ~~the Company’s~~our qualification as a REIT under the Internal Revenue Code.

~~Credit Facility~~

On April 18, 2007 we amended our unsecured revolving credit facility. The amendment allows additional assets, subject to certain limitations, to be included in our borrowing base, and provides a more favorable valuation of our megaplex theatres and entertainment related retail assets in the calculation of the borrowing base and the leverage ratio. Additionally, the amendment relaxes the covenants that limit our investment in certain types of assets, raises our capacity to issue letters of credit and provides us with the flexibility to incur other unsecured recourse indebtedness, subject to certain limitations, beyond the unsecured revolving credit facility. The size, term and pricing of the unsecured revolving credit facility were not impacted by the amendment.

~~Issuance of Series D Preferred Shares~~

On May 25, 2007, we issued 4.6 million 7.375% Series D Cumulative Redeemable Preferred Shares (“Series D Preferred Shares”) in a registered public offering for net proceeds of approximately $111.1 million, after expenses. We will pay cumulative dividends on the Series D Preferred Shares from the date of original issuance in the amount of $1.844 per share each year, which is equivalent to 7.375% of the $25 liquidation preference per share. Dividends on the Series D Preferred Shares are payable quarterly in arrears, and were first payable on July 16, 2007 with a pro-rated quarterly payment of $0.1844 per share. We may not redeem the Series D Preferred Shares before May 25, 2012, except in limited circumstances to preserve our REIT status. On or after May 25, 2012, we may, at our option, redeem the Series D Preferred Shares in whole at any time or in part from time to time, by paying $25 per share, plus any accrued and unpaid dividends up to and including the date of redemption. The Series D Preferred Shares generally have no stated maturity, will not be subject to any sinking fund or mandatory redemption, and are not convertible into any of our other securities. Owners of the Series D Preferred Shares generally have no voting rights, except under certain dividend defaults.

~~The net proceeds from this offering were used to redeem our 9.50% Series A Cumulative Redeemable Preferred Shares and to pay down our unsecured revolving credit facility.~~

~~Redemption of Series A Preferred Shares~~

On May 29, 2007, we completed the redemption of all 2.3 million of our outstanding 9.50% Series A Cumulative Redeemable Preferred Shares. The shares were redeemed at a redemption price of $25.39 per share. This price is the sum of the $25.00 per share liquidation preference and a quarterly dividend per share of $0.59375 prorated through the redemption date. In conjunction with the redemption, we recognized both a non-cash charge representing the original issuance costs that were paid in 2002 and also other redemption related expenses. The aggregate reduction to net income available to common shareholders was approximately $2.1 million ($0.08 per fully diluted common share) for the nine months ended September 30, 2007.

~~Issuance of Common Shares~~

On October 15, 2007, we completed a public offering of 1,400,000 common shares at $54.00 per share. Total net proceeds after expenses were approximately $73.9 million and were used to pay down our unsecured revolving credit facility.

Investments

On February 29, 2008, we loaned $10.0 million to Louis Cappelli. Through his related interests, Louis Cappelli is the developer and minority interest partner of our New Roc and White Plains entertainment retail centers located in the New York metropolitan area. The note bears interest at 10% and matures on February 28, 2009. As part of this transaction, we also received an option to purchase 50% of Louis Cappelli’s (or Louis Cappelli’s related interests) in three other projects in the New York metropolitan area. These projects are expected to cost approximately $300.0 million.

In addition, during the three months ended March ~~13, 2007, we entered into a secured first mortgage loan agreement~~31, 2008, the Company funded approximately $12.3 million for ~~$93.0 million with SVV I, LLC for the~~ development of Schlitterbahn Vacation Village, a water-park anchored entertainment ~~village. The secured property is approximately 368 acres of development land located~~village in Kansas City, Kansas. The ~~carrying value of~~Company has committed to fund $175.0 million on this mortgage note receivable at September 30, 2007 was $86.2 million, including related accrued interest receivable of $661 thousand. This loan is guaranteed by the Schlitterbahn New Braunfels Group (Bad-Schloss, Inc., Waterpark Management, Inc., Golden Seal Investments, Inc., Liberty Partnership, Ltd., Henry Condo I, Ltd., and Henry-Walnut, Ltd.)project and has ~~a maturity date of~~funded $108.0 million through March ~~12,~~31, 2008. ~~Monthly interest payments are made to us and the unpaid principal balance bears interest at LIBOR plus 3.5%.~~

On April 4, 2007, we entered into two secured first mortgage loan agreements totaling $73.5 million with Peak Resorts, Inc. (“Peak”). We advanced $56.6 million during the nine months ended September, 30, 2007 under these agreements. The loans are secured by two ski resorts located in Vermont and New Hampshire. Mount Snow is approximately 2,378 acres and is located in both West Dover and Wilmington, Vermont. Mount Attitash is approximately 1,250 acres and is located in Bartlett, New Hampshire. The carrying value of these mortgage notes at September 30, 2007 was $56.6 million with no related accrued interest receivable. The loans have a maturity date of April 3, 2027 and the unpaid principal balance initially bears interest at 10%. These notes currently require Peak to fund debt service reserves annually by April 30^th ~~for the amount of the upcoming year’s debt service. Monthly interest payments are transferred to the Company from these debt service reserves.~~

Additionally, on April 4, 2007, we entered into a third secured first mortgage loan agreement for $25.0 million with Peak for further development of Mount Snow. The loan is secured by approximately 696 acres of development land. We advanced the full amount of the loan during April of 2007. The carrying value of this mortgage note receivable at September 30, 2007 was $26.3 million, including related accrued interest receivable of $1.3 million. The loan has a maturity date of April 2, ~~2010 at which time the unpaid principal balance and all accrued interest is due. The unpaid principal balance bears interest at 10%.~~

~~On April 30, 2007, we purchased a 35 acre vineyard and winery facility in Hopland, California, and simultaneously leased this property to Rb Wine Associates, LLC. The acquisition price for the~~

~~property was approximately $5.9 million and it is leased under a long-term triple-net lease. Subsequent to the initial acquisition, we have invested an additional $3.7 million in this project.~~

~~On May 8, 2007,~~2008, we acquired, ~~66.67%~~through a wholly-owned subsidiary, the remaining 50.0% ownership interest in CS Fund I for a purchase price of the voting interests in White Plains Retail, LLC and White Plains Recreational, LLC, the entities which own the 390,000 square foot entertainment retail center known as City Center at White Plains, located in White Plains, New York. The project had existing debt of $119.7approximately $39.5 million ~~and we invested cash of $31.3 million to complete the transaction. For additional description~~from our partner, JERIT Fund I Member. Upon completion of this transaction, ~~and its FIN 46R implications, see Note 6 to the consolidated financial statements in this Form 10-Q.~~

On August 1, 2007, we purchased a 60 acre vineyard and winery facility in Paso Robles, California, and simultaneously leased this property to Sapphire Wines, LLC. The acquisition price for the property was approximately $21.0 million and it is leased under a long-term triple-net lease. Additionally, on August 1, 2007, we entered into a loan agreement for $5.0 million with Sapphire Wines, LLC. The loan has a maturity date of February 1, 2008 at which time the unpaid principal balance is due. The unpaid principal balance bears interest at 9% and is payable monthly.

On August 14, 2007, we purchased the land and winery facilities associated with three vineyards. The total purchase price consisted of approximately 225 acres of land and 72 thousand square feet of winery facilities located in Pope Valley, Lockeford, and Clements, California. The properties were simultaneously leased to CE2V Winery, LLC, Lockeford Winery, LLC, Crystal Valley Cellars, LLC and Cosentino Winery LLC. The acquisition price for the property was approximately $20.5 million and it is leased under a long-term triple-net lease.

During the three months ended September 30, 2007, we invested an additional $3.4 million Canadian ($3.2 million U.S.) in the mortgage note receivable from Metropolis Limited Partnership (the Partnership) related to the construction of Toronto Life Square, a 13 level entertainment retail center in downtown Toronto. On October 19, 2007, we advanced $6.2 million Canadian ($6.4 million U.S.) to the Partnership and we anticipate advancing an additional $7 to $12 million Canadian prior to the end of 2008. Consistent with the previous advances on this project, each advance will have a five year stated term and bear interest at 15%. A bank has agreed to provide the Partnership first mortgage construction financing of up to $122 million Canadian, and it is anticipated that the project will be completed in 2008 at a total cost of approximately $315 million Canadian.

Additionally, during the three months ended September 30, 2007, we posted additional irrevocable stand-by letters of credit related to the Toronto Life Square project. As of October 31, 2007, the letters of credit related to this project totaled $13.2 million, of which at least $5 million is expected to be drawn upon and added to our mortgage note receivable by May 31, 2008. The remaining letters of credit are expected to be cancelled or drawn upon during 2008 in conjunction with the completion and permanent financing of the Toronto Life Square project. Interest accrues on these outstanding letters of credit at a rate of 12% (15% if drawn upon). We also received an origination fee of $250 thousand Canadian ($237 thousand U.S.) in connection with this financing activity, and the fee is being amortized over the remaining term of the loan.

During the nine months ended September 30, 2007, we completed development of two megaplex theatre properties. The Stadium 14 Cinema in Kalispell, Montana is operated by Signature Theatres and was completed for a total development cost (including land and building) of approximately $9.8 million. The Grand 16 Theatre at Pier Park located in Panama City, Florida is operated by Southern Theatres and was completed for a total development cost (including land and building) of approximately $17.6 million. These theatres are both leased under long-term triple-net leases.

On October 30, 2007, we entered into a secured first mortgage loan agreement for $31.0 million with Peak. The loan is secured by seven ski resorts located in Missouri, Indiana, Ohio and Pennsylvania with a total of approximately 506 acres. The loan has a maturity date of October 30, 2027 and initially bears interest at 9.25%.

~~On October 30, 2007, we acquired a 50% ownership interest in JERIT~~ CS Fund I ~~(CS~~became a wholly-owned subsidiary of the Company. The member purchase agreement provides that we shall pay JERIT Fund ~~I),~~I Member a ~~Delaware limited liability company,~~monthly asset management fee of 1.875% of the monthly rent for the public charter school properties, for the six month period following the closing. The membership purchase agreement also contains an option pursuant to which JERIT Fund I Member may re-acquire its 50% interest in ~~exchange for $39.2 million.~~CS Fund I within six months after the acquisition of such interest by us. CS Fund I currently owns 12 public charter ~~public~~ school properties located in Nevada, Arizona, Ohio, Georgia, Missouri, Michigan, Florida and Washington D.C. and leases them under a long-term triple net master lease. ~~Imagine Schools, Inc. operates the charter public schools and guarantees the lease payments. Our partner in~~

CS Fund I also has an option to purchase an additional $120.0 million of public charter school properties, of which $60.0 million would be scheduled to close within 90 days if such option is JERIT CS Fund I Member, and it will serve as the managing member. JERIT CS Fund I Member is a wholly-owned subsidiary of JER Investors Trust Inc., a publicly traded real estate investment trust. Cash distributions will be made to the partners of CS Fund I based on their respective ownership interests. As of the October 30, 2007 purchase date, the CS Fund I had no significant liabilities.

~~Sale of Property~~

On June 7, 2007, we sold a parcel of land adjacent to our megaplex theatre in Pompano, Florida and the related development rights to a developer group for $7.7 million. Accordingly, we recognized a gain on sale of real estate of $3.2 million and recognized development fees of $0.7 million during the nine months ended September 30, 2007. For further detail on this disposition, see Note 11 and 15 to the consolidated financial statements in this Form 10-Q.exercised.

Derivative Instruments

As further discussed in Note 146 to the consolidated financial statements in this Quarterly Report on Form 10-Q, on ~~June 1, 2007, the Company~~March 13, 2008, we entered into two interest rate swap agreements. These agreements fixed the interest rates of $9.5 million in term loans funded in March of 2008 at a ~~cross currency swap and a new forward contract. The cross currency swap has a notional amount~~weighted average of $76.0 million Canadian dollars (CAD) and $71.5 million U.S. The net effect of this swap is to lock in an exchange rate of $1.05 CAD per U.S. dollar on approximately $13 million of annual CAD denominated cash flows. The new forward contract has a notional amount of $100 million CAD and a February 2014 settlement date. The exchange rate of this forward contract is approximately $1.04 CAD per U.S. dollar.5.52%.

Results of Operations

Three months ended ~~September 30, 2007~~March 31, 2008 compared to three months ended ~~September 30, 2006~~March 31, 2007

Rental revenue was ~~$48.1~~$49.1 million for the three months ended ~~September 30, 2007,~~March 31, 2008, compared to ~~$41.4~~$42.9 million for the three months ended ~~September 30, 2006.~~March 31, 2007. The ~~$6.7~~$6.2 million increase resulted primarily from the acquisitions and developments completed in ~~2006~~2007 and ~~2007~~2008 and base rent increases on existing properties. Percentage rents of $0.6 million and $0.5 million were recognized during the three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. Straight-line rents of ~~$1.2~~$0.8 million and $1.0 million were recognized during the three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively.

Other income was $0.5 million for the three months ended September 30, 2007 compared to $0.7 million for the three months ended September 30, 2006. The decrease of $0.2 million is primarily due to a decrease in revenues from a restaurant in Southfield, Michigan opened in September 2005 and previously operated through a wholly-owned taxable REIT subsidiary. 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 three months ended September 30, 2007 was $7.7 million compared to $2.6 million for the three months ended September 30, 2006 and relates to the following:~~

• ~~mortgage financing for the development of an entertainment retail center in Canada with an initial funding date in June of 2005~~

• ~~mortgage financing for a ski resort located in New Hampshire provided in March of 2006~~

• ~~mortgage financing for the development of a megaplex theatre in Louisiana provided with an initial funding date in November of 2006~~

• ~~mortgage financing for the development of a water-park entertainment village in Kansas with an initial funding date in March of 2007~~

• ~~mortgage financing for two ski resorts located in Vermont and New Hampshire with initial funding dates in April of 2007~~

Our property operating expense totaled $5.8 million for the three months ended September 30, 2007 compared to $4.8 million for the three months ended September 30, 2006. These property operating expenses arise from the operations of our retail centers. The increase of $1.0 million is primarily due to $1.2 million in property operating expense related to our May 8, 2007 acquisition of a 66.67% interest in the joint ventures that own an entertainment retail center in White Plains, New York.

Other expense totaled $1.0 million for the three months ended September 30, 2007 compared to $0.9 million for the three months ended September 30, 2006. The $0.1 million increase is due to $0.5 million in expense recognized upon settlement of foreign currency forward contracts during the three months ended September 30, 2007. This increase is partially offset by a decrease in expense related to a restaurant in Southfield, Michigan opened in September of 2005, and previously operated through a wholly-owned taxable REIT subsidiary. 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 $3.0 million for the three months ended September 30, 2007 compared to $2.3 million for the three months ended September 30, 2006. The increase of $0.7 million is due to increases in costs that primarily resulted from payroll and related expenses attributable to increases in base and incentive compensation, additional employees and amortization resulting from grants of restricted shares to management, as well as increases in franchise taxes and professional fees.

Our net interest expense increased by $3.9 million to $16.1 million for the three months ended September 30, 2007 from $12.2 million for the three months ended September 30, 2006. Approximately $1.7 million of the increase resulted from the acquisition of a 66.67% interest in the joint ventures that own an entertainment retail center in White Plains, New York that had an

outstanding mortgage debt of $119.7 million as of the May 8, 2007 acquisition date. The remainder of the increase resulted from increases in long-term debt used to finance our real estate acquisitions and fund our new mortgage notes receivable.

Depreciation and amortization expense totaled $9.9 million for the three months ended September 30, 2007 compared to $7.9 million for the three months ended September 30, 2006. The $2.0 million increase resulted primarily from our real estate acquisitions completed in 2006 and 2007.

Minority interest totaled $1.0 million for the three months ended September 30, 2007 and resulted from the consolidation of a VIE in which our only variable interest is debt and the VIE has sufficient equity to cover its cumulative net losses incurred subsequent to our loan transaction. There was no such minority interest for the three months ended September 30, 2006.

Preferred dividend requirements for the three months ended September 30, 2007 were $5.6 million compared to $2.9 million for the same period in 2006. The $2.7 million increase is due to the issuance of 5.4 million Series C preferred shares in December of 2006 and 4.6 million Series D preferred shares in May of 2007, partially offset by the redemption of 2.3 million Series A preferred shares in May of 2007.

~~Nine months ended September 30, 2007 compared to nine months ended September 30, 2006~~

Rental revenue was $136.7 million for the nine months ended September 30, 2007 compared to $125.4 million for the nine months ended September 30, 2006. The $11.3 million increase resulted primarily from the acquisitions and developments completed in 2006 and 2007 and base rent increases on existing properties, partially offset by the recognition of a lease termination fee of $4.0 million from our theatre in Hialeah, Florida during the nine months ended September 30, 2006. Percentage rents of $1.6 million and $1.3 million were recognized during the nine months ended September 30, 2007 and 2006, respectively. Straight-line rents of $3.2 million and $2.9 million were recognized during the nine months ended September 30, 2007 and 2006, respectively.

Tenant reimbursements totaled $12.6 million for the nine months ended September 30, 2007 compared to $10.7 million for the nine months ended September 30, 2006. These tenant reimbursements arise from the operations of our retail centers. Of the $1.9 million increase, $1.7 million is due to our May 8, 2007 acquisition of a 66.67% interest in the joint ventures that own an entertainment retail center in White Plains, New York. The remaining increase is due to increases in tenant reimbursements, primarily driven by the expansion and leasing of the gross leasable area at our retail centers in Ontario, Canada.

~~Other~~Mortgage and other financing income for the three months ended March 31, 2008 was ~~$1.8~~$10.4 million compared to $3.5 million for the ~~nine~~three months ended ~~September 30, 2007 compared to $2.7~~March 31, 2007. The $6.9 million for the nine months ended September 30, 2006. The decrease of $0.9 million is primarily due to a decrease in revenues from a restaurant in Southfield, Michigan opened in September 2005 and previously operated through a wholly-owned taxable REIT subsidiary. 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 nine months ended September 30, 2007 was $17.3 million compared to $6.8 million for the nine months ended September 30, 2006 and~~increase relates to the ~~following:~~

• ~~mortgage financing for~~increased real estate lending activities subsequent to the ~~development~~first quarter of ~~an entertainment retail center in Canada with an initial funding date in June of 2005~~

• ~~mortgage financing for a ski resort located in New Hampshire provided in March of 2006~~

• ~~mortgage financing for the development of a megaplex theatre in Louisiana provided with an initial funding date in November of 2006~~

• ~~mortgage financing for the development of a water-park entertainment village in Kansas with an initial funding date in March of 2007~~

• ~~mortgage financing for two ski resorts located in Vermont and New Hampshire with initial funding dates in April of 2007~~2007.

Our property operating expense totaled ~~$15.9~~$7.1 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 compared to ~~$14.3~~$4.6 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. These property operating expenses arise from the operations of our retail centers. The increase of ~~$1.6~~$2.5 million is primarily due to ~~$1.9~~$1.3 million in property operating expense related to our May 8, 2007 acquisition of a 66.67% interest in the joint ventures that own an entertainment retail center in White Plains, New York. ~~This~~The remaining increase ~~was partially offset by a decrease~~is due to increases in ~~bad debt~~property operating expense at our other retail centers, primarily related to ~~our entertainment retail center in New Rochelle, New York.~~property taxes.

Other expense totaled ~~$2.6~~$0.9 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 compared to ~~$2.9~~$0.6 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. The $0.3 million ~~decrease~~increase is ~~primarily~~ due to a $1.2 million decrease in expenses from a restaurant in Southfield, Michigan opened in September of 2005, and previously operated through a wholly-owned taxable REIT subsidiary. The restaurant in Southfield Michigan was closed during the third quarter of 2006 and the space was leased to an unrelated restaurant tenant. This decrease was partially offset by $0.9$0.4 million in expense recognized upon settlement of foreign currency forward contracts during the ~~nine~~three months ended ~~September 30, 2007.~~March 31, 2008. Partially offsetting this increase is a decrease in expense from a family bowling center in Westminster, Colorado operated through a wholly-owned taxable REIT subsidiary.

Our general and administrative expense totaled ~~$9.1~~$4.4 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 compared to ~~$10.0~~$3.2 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. The ~~decrease~~increase of ~~$0.9~~$1.2 million is ~~primarily~~ due to $1.7 million in expense during the nine months ended September 30, 2006 related to unvested share awards from prior years. Additionally, during the nine months ended September 30, 2006, we recognized expense of $1.4 million related to the retirement of one of our executives. Partially offsetting these decreases were increases in costs that primarily resulted from payroll and related expenses attributable to increases in base and incentive compensation, additional employees and amortization resulting from grants of ~~restricted~~nonvested shares to management, as well as increases in professional fees and franchise ~~taxes~~taxes. In addition, general and ~~professional fees.~~

~~Costs~~administrative expense for the three months ended March 31, 2008 includes $0.3 million in costs associated with loan refinancing for the nine months ended September 30, 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 nine months ended September 30, 2007.terminated transactions.

Our net interest expense increased by ~~$6.5~~$6.1 million to ~~$41.7~~$17.5 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 from ~~$35.2~~$11.4 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. Approximately ~~$2.7~~$1.7 million of the increase resulted from the acquisition of a 66.67% interest in the joint ventures that own an entertainment retail center in White Plains, New York that had an outstanding mortgage debt of $119.7 million as of the May 8, 2007 acquisition date. The remainder of the

increase resulted from increases in long-term debt used to finance our real estate acquisitions and fund our new mortgage notes receivable.

Depreciation and amortization expense totaled ~~$27.3~~$10.7 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 compared to ~~$23.1~~$8.3 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. The ~~$4.2~~$2.4 million increase resulted primarily from our real estate acquisitions completed in ~~2006 and~~ 2007.

~~The gain on sale of land of $0.3~~Equity in income from joint ventures totaled $1.3 million for the ~~nine~~three months ended ~~September 30, 2006 was due~~March 31, 2008 compared to ~~the sale of an acre of land that was originally purchased along with one of our megaplex theatres. There was no such gain on sale of land recognized~~$0.2 million for the ~~nine~~three months ended ~~September~~March 31, 2007. The $1.1 million increase resulted from the Company’s investment in a 50% ownership interest of CS Fund I on October 30, 2007.

Minority interest totaled ~~$1.0~~$0.5 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 and resulted from the consolidation of a VIE in which our ~~only~~ variable interest is debt and the VIE has sufficient equity to cover its cumulative net losses incurred subsequent to our loan transaction. There was no such minority interest for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007.

~~Income from discontinued operations totaled $0.8~~Preferred dividend requirements for the three months ended March 31, 2008 were $5.6 million compared to $4.9 million for the ~~nine months ended September 30, 2007 compared to $0.5 million for the nine months ended September 30, 2006.~~same period in 2007. The ~~$0.3~~$0.7 million increase is due to the recognition of $0.7 million in development fees related to a parcel adjacent to our megaplex theatre in Pompano, Florida. The development rights, along with two income-producing tenancies, were sold to a developer group in June of 2007. This increase was partially offset by a $0.4 million gain for the nine months ended September 30, 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 2006.

The gain on sale of real estate from discontinued operations of $3.2 million for the nine months ended September 30, 2007 was due to the sale of a parcel that included two leased properties adjacent to our megaplex theatre in Pompano, Florida. There was no gain on sale of real estate from discontinued operations recognized for the nine months ended September 30, 2006.

~~Preferred dividend requirements for the nine months ended September 30, 2007 were $15.7 million compared to $8.7 million for the same period in 2006. The $7.0 million increase is due to the~~ issuance ~~of 5.4 million Series C preferred shares in December of 2006 and~~ 4.6 million Series D preferred shares in May of 2007, partially offset by the redemption of 2.3 million Series A preferred shares in May of 2007.

The Series A preferred share redemption costs of $2.1 million for the nine months ended September 30, 2007 was due to the redemption of the Series A preferred shares on May 29, 2007 and primarily consists of a noncash charge for the excess of the redemption value over the carrying value of these shares. There was no such expense incurred during the nine months ended September 30, 2006.

Liquidity and Capital Resources

Cash and cash equivalents were ~~$10.8~~$10.6 million at ~~September 30, 2007.~~March 31, 2008. In addition, we had restricted cash of ~~$10.6~~$10.9 million at ~~September 30, 2007.~~March 31, 2008. Of the restricted cash at ~~September 30, 2007, $2.9~~March 31, 2008, $3.9 million relates to cash held for our borrower’s debt service reserve for a mortgage note receivable and the balance represents deposits required in connection with debt service, payment of real estate taxes and capital improvements.

Mortgage Debt, Credit Facilities and Term Loan

As of ~~September 30, 2007,~~March 31, 2008, we had total debt outstanding of $1.1 billion. As of ~~September 30, 2007, $929.1 million~~March 31, 2008, $1.08 billion of debt outstanding was fixed rate mortgage debt secured by a substantial portion of our rental properties and mortgage notes receivable, with a weighted average interest rate of approximately ~~6.1%~~6.0%. This $1.08 billion of fixed rate mortgage debt includes $123.5 million of LIBOR based debt that has been converted to fixed rate with interest rate swaps as further described below.

At ~~September 30, 2007,~~March 31, 2008, we had ~~$131.5~~$5.0 million in debt outstanding under our $235.0 million unsecured revolving credit facility, with interest at a floating rate. The unsecured revolving credit facility matures in January of ~~2009~~2009. The amount that we are able to borrow on our unsecured revolving credit facility is a function of the values and ~~was recently amended (described in Note 10~~advance rates, as defined by the credit agreement, assigned to the ~~consolidated financial statements~~assets included in ~~this Quarterly Report on Form 10-Q).~~

~~Subsequent to September 30, 2007, we obtained a~~the borrowing base less outstanding letters of credit and less other liabilities, excluding our $119.4 million term loan, that are recourse obligations of ~~$120~~the Company. As of March 31, 2008, our total availability under the unsecured revolving credit facility was $101.8 million. ~~This~~

On March 13, 2008, a wholly-owned subsidiary that holds our vineyards and winery assets entered into a $65.0 million term loan and revolving credit facility that is ~~secured~~non-recourse to the Company. The credit facility is evidenced by ~~primarily non-theatre assets~~a Credit Agreement dated as of March 4, 2008 and ~~is recourse to us. This loan~~ bears interest at LIBOR plus ~~175 basis points~~1.5% on loans secured by real property and ~~has~~LIBOR plus 1.75% on loans secured by fixtures and equipment. The Credit Agreement contains an accordion feature whereby, subject to lender approval, the Company may obtain additional revolving credit and term loan commitments in an aggregate principal amount not to exceed $35.0 million. The initial disbursements under the Credit Agreement occurred in March of 2008 and consisted of two term loans in the aggregate principal amount of approximately $9.5 million with maturity dates of December 1, 2017 and March 5, 2018, respectively, and we simultaneously entered into interest rate swap agreements that fixed the interest rates on these loans at a ~~four year term expiring in 2011 with a one year extension available at our option.~~weighted average of 5.52%. Additionally, on March 24, 2007, the Company obtained $3.2 million of equipment loans that mature on December 1, 2017.

Our principal investing activities are acquiring, developing and financing entertainment, entertainment-related, recreational and specialty properties. These investing activities have generally been financed with mortgage debt and the proceeds from equity offerings. Our unsecured revolving

credit facility and our ~~new~~ term ~~loan~~loans are 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 securities offerings.

Certain of our long-term debt agreements contain customary restrictive covenants related to financial and operating performance. At March 31, 2008, we were in compliance with all restrictive covenants.

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 our leverage ratio (i.e. total-long term debt of the Company as a percentage of shareholders’ equity plus total liabilities) below 55%. However, the timing and size of our equity offerings may cause us to temporarily operate over this threshold. At ~~September 30, 2007,~~March 31, 2008, our leverage ratio was 51%. Our long-term debt as a percentage of our total market capitalization at ~~September 30, 2007~~March 31, 2008 was 39%. 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 $2.8 billion as follows at ~~September 30, 2007:~~March 31, 2008:

• ~~Common shares outstanding of 26,683,408 multiplied by the last reported sales price of our common shares on the NYSE of $50.80 per~~

~~share, or $1.4 billion;~~

• ~~Aggregate liquidation value of our Series B preferred shares of $80 million;~~

• ~~Aggregate liquidation value of our Series C preferred shares of $135 million;~~

• ~~Aggregate liquidation value of our Series D preferred shares of $115 million; and~~

•

	•		Common shares outstanding of 28,209,974 multiplied by the last reported sales price of our common shares on the NYSE of $49.33 per share, or $1.4 billion;

	•		Aggregate liquidation value of our Series B preferred shares of $80 million;

	•		Aggregate liquidation value of our Series C preferred shares of $135 million;

	•		Aggregate liquidation value of our Series D preferred shares of $115 million; and

	•		Total long-term debt of $1.1 billion

Our interest coverage ratio for the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ was ~~3.3~~3.1 times and ~~3.4~~3.7 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 ~~Generally~~

Short-term liquidity requirements consist primarily of normal recurring corporate operating expenses, debt service requirements and distributions to shareholders. We meet these requirements primarily through cash provided by operating activities. ~~Cash~~Net cash provided by operating activities was ~~$93.5~~$26.1 million for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 and ~~$79.6~~$27.7 million for the ~~nine~~three months ended ~~September 30, 2006.~~March 31, 2007. Net cash used in investing activities was $30.9 million and $65.1 million for the three months ended March 31, 2008 and 2007, respectively. Net cash provided by financing activities was $.4 million and $34.6 million for the three months ended March 31, 2008 and 2007, respectively. We anticipate that our cash on hand, cash from operations, and funds available under our unsecured revolving credit facility will provide adequate liquidity to fund our operations, make interest and principal payments on our debt, and allow distributions to our shareholders and ~~avoidance of~~avoid corporate level federal income or excise tax in accordance with REIT Internal Revenue Code ~~requirements for qualification as a REIT.~~requirements.

We have posted $12.6 million of irrevocable stand-by letters of credit related to the Toronto Life Square, of which at least $5 million is expected to be drawn upon and added to our mortgage note receivable by May 31, 2008.

We believe that we will be able to obtain financing in order to repay our debt obligations by refinancing the properties as the debt comes due. However, there can be no assurance that additional financing or capital will be available, or that terms will be acceptable or advantageous to us.

Our primary use of cash after paying operating expenses, debt service and distributions to shareholders is in the acquisition, development and financing of properties. We expect to finance these investments with borrowings under our unsecured revolving credit facility, as well as long-term debt and equity financing alternatives. The availability and terms of any such financing will depend upon market and other conditions. If we borrow the maximum amount available under our unsecured revolving credit facility, there can be no assurance that we will be able to obtain additional investment financing, which would not affect our liquidity, but would affect our ability to grow.

Off Balance Sheet Arrangements

We had ~~two~~one theatre ~~projects~~project under construction at ~~September 30, 2007.~~March 31, 2008. The ~~properties have~~property has been pre-leased to the prospective ~~tenants~~tenant under a long-term triple-net ~~leases.~~lease. The cost of development is paid by us in periodic draws. The related timing and amount of rental payments to be received by us from tenants under the leases correspond to the timing and amount of funding by us of the cost of development. ~~These theatres~~The theatre will have a total of 3012 screens and ~~their~~ total development costs will be approximately ~~$25.6~~$13.2 million. Through ~~September 30, 2007,~~March 31, 2008, we have invested ~~$7.6~~$1.4 million in ~~these projects~~this project and have commitments to fund an additional ~~$18.0~~$11.8 million in improvements. We plan to fund development primarily with funds generated by debt financing and/or equity offerings. If we determine that construction is not being completed in accordance with the terms of the development agreement, we can discontinue funding construction draws.

~~Off Balance Sheet Arrangements~~On October 31, 2007, we entered into a guarantee agreement for $22.0 million. This guarantee is for economic development revenue bonds with a total principal amount of $22.0 million, maturing on October 31, 2037. The bonds were issued by Southern Theatres for the purpose of financing the development and construction of three megaplex theatres in Louisiana. We earn an annual fee of 1.75% on the outstanding principal amount of the bonds and the fee is paid by Southern Theatres monthly. We evaluated this guarantee in connection with the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). Based on certain criteria, FIN 45 requires a guarantor to record an asset and a liability for a guarantee at inception. Accordingly, we have recorded approximately $4.0 million as a deferred asset included in accounts receivable and approximately $4.0 million in other liabilities in the accompanying consolidated balance sheets as of March 31, 2008 and December 31, 2007.

We have certain unfunded commitments related to our mortgage note investments that we may be required to fund in the future. We are generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of our direct control. As of March 31, 2008, we had four mortgage notes receivable with unfunded commitments totaling approximately $87.6 million. If such commitments are funded in the future, interest will be charged at rates consistent with the existing investments.

At ~~September 30, 2007,~~March 31, 2008, we had a ~~20.3%~~20.6%, 21.2% and ~~21.2%~~50.0% investment interest in ~~two~~three unconsolidated real estate joint ventures, Atlantic-EPR I, ~~and~~ Atlantic-EPR II and CS Fund I, respectively, which are accounted for under the equity method of accounting. We do not anticipate any material impact on our liquidity as a result of any commitments that may arise involving those joint ventures. We recognized income of ~~$369~~$126 and ~~$346~~$120 (in thousands) from our investment in the Atlantic-EPR I joint venture during the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. We ~~also~~ recognized income of ~~$228~~$79 and ~~$220~~$78 (in thousands) from our investment in the Atlantic-EPR II joint venture during the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, ~~and 2006,~~ respectively. We also recognized income of $1.1 million from our investment in the CS Fund I joint venture during the three months ended March 31, 2008. No such income from CS Fund I was recognized during the three months ended March 31, 2007. Condensed financial information for Atlantic-EPR I, ~~and~~ Atlantic-EPR II and CS Fund I joint ventures is included in Note 4 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

The joint venture agreements for Atlantic-EPR I and Atlantic-EPR II allow our partner, Atlantic of Hamburg, Germany (Atlantic), to exchange up to a maximum of 10% of its ownership interest per year in each of the joint ventures for ~~our~~ common shares of the Company or, at our discretion, the cash value of those shares as defined in each of the joint venture agreements. ~~We received~~Atlantic gave the us notice ~~from Atlantic~~ that effective ~~September 28,~~December 31, 2007 and March 31, 2008 they wanted to exchange a portion of their ownership in Atlantic-EPR I and Atlantic-EPR II. In ~~October~~January of ~~2007,~~2008, we paid Atlantic cash of ~~$71 and $137~~$95 (in thousands) in exchange for additional ownership of ~~.3% and 1.2 %~~.5% for Atlantic-EPR I. In April of 2008, we paid Atlantic cash of $38 (in thousands) in exchange for additional ownership of .2% of Atlantic EPR I. These exchanges did not impact total partners’ equity in either Atlantic-EPR I ~~and~~or Atlantic-EPR ~~II, respectively.~~

On October 30, 2007, we acquired a 50% ownership interest in JERIT CS Fund I (CS Fund I), a Delaware limited liability company. For further detail on this acquisition, see Note 18 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.II.

Funds From Operations (FFO)

The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is a widely used measure of the operating performance of real estate companies and is provided here as a supplemental measure to GAAP net income available to common shareholders and earnings per share. FFO, as defined under the revised NAREIT definition and presented by us, is net income available to common shareholders, computed in accordance with GAAP, excluding gains and losses from sales of depreciable operating properties, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships, joint ventures and other affiliates. Adjustments for unconsolidated partnerships, joint ventures and other affiliates are calculated to reflect FFO on the same basis. FFO is a non-GAAP financial measure. FFO does not represent cash flows from

operations as defined by GAAP and is not indicative that cash flows are adequate to fund all cash needs and is not to be considered an alternative to net income or any other GAAP measure as a measurement of the results of our operations or our cash flows or liquidity as defined by GAAP. It should also be noted that not all REITs calculate FFO the same way so comparisons with other REITs may not be meaningful.

The additional 1.9 million common shares that would result from the conversion of our 5.75% Series C cumulative convertible preferred shares and the corresponding add-back of the preferred dividends declared on those shares are not included in the calculation of diluted earnings per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007 because the effect is anti-dilutive. However, because a conversion would be dilutive to FFO per share for the three months ended March 31, 2008, these adjustments have been made in the calculation of diluted FFO ~~per share.~~for that period.

The following table summarizes our FFO, FFO per share and certain other financial information for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006 (in~~(unaudited, in thousands, except per share information):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2007			2006		2007			2006		2008			2007
Net income available to common shareholders	$	20,739		$	17,800	$	59,733		$	52,147	$	21,511		$	18,054
Subtract: Gain on sale of real estate from discontinued operations		—			—		(3,240	)		—
Subtract: Minority Interest		(988	)		—		(988	)		—		(531	)		—
Add: Real estate depreciation and amortization		9,751			7,687		26,770			22,584		10,501			8,084
Add: Allocated share of joint venture depreciation		61			61		184			182		312			61

FFO available to common shareholders		29,563			25,548		82,459			74,913		31,793			26,199


FFO available to common shareholders	$	29,563		$	25,548	$	82,459		$	74,913	$	31,793		$	26,199
Add: Preferred dividends for Series C		1,941			—		5,822			—		1,941			—

Diluted FFO available to common shareholders		31,504			25,548		88,281			74,913		33,734			26,199


FFO per common share:
Basic	$	1.12			0.97	$	3.13		$	2.87	$	1.14			1.00
Diluted		1.10			0.95		3.07			2.83		1.12			0.98

Shares used for computation (in thousands):
Basic		26,432			26,298		26,378			26,093		27,843			26,282
Diluted		28,724			26,769		28,755			26,511		30,099			26,820

Weighted average shares outstanding - diluted EPS		26,824			26,769		26,858			26,511		28,191			26,820
Effect of dilutive Series C preferred shares		1,900			—		1,897			—		1,908			—

Adjusted weighted average shares outstanding - diluted		28,724			26,769		28,755			26,511		30,099			26,820


Other financial information:
Straight-lined rental revenue	$	1,178			1,014		3,229			2,853	$	826			956
Dividends per common share											$	0.84			0.76
FFO payout ratio*												75	%		78	%


*		FFO payout ratio is calculated by dividing dividends per common share by FFO per diluted common share.

Impact of Recently Issued Accounting Standards

In ~~June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~~~. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109,~~~~Accounting for Income Taxes,~~and it prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 was effective for us on January 1, 2007. The adoption of FIN 48 did not have a material impact on our financial statements.

~~In September 2006,~~November 2007, the FASB ~~issued Statement~~proposed a one-year deferral of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS No. 157) ~~which defines~~ fair value ~~establishes a framework~~measurement requirements for ~~measuring~~nonfinancial assets and liabilities that are not required or permitted to be measured at fair value in accordance with GAAP, and expands disclosures about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP and does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier adoption is encouraged.on a recurring basis. The Company does not expect the adoption of SFAS No. 157 will have a material impact on its financial position or results of operations.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for

an eligible item is elected, unrealized gains and losses for that item are to be reported in current earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the Company elects for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have elected not to use the fair value measurement provisions of Statement No. 159 for any additional financial assets and liabilities that were not otherwise measured at fair value.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests. It requires that noncontrolling interests, sometimes referred to as minority interests, be reported as a separate component of equity in the consolidated financial statements. Additionally, it requires net income and comprehensive income to be displayed for both controlling and noncontrolling interests. SFAS No. 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. SFAS No. 160 will be applied prospectively to all noncontrolling interests, even those that occurred prior to the effective date. The Company is required to adopt SFAS No. ~~159~~160 in the first quarter of ~~2008. The Company~~2009 and is currently evaluating the impact that SFAS No. ~~159~~160 will have on its financial statements.

Additionally, in December 2007, FASB Statement of Financial Accounting Standards No. 141, “Business Combinations” was revised by the FASB Statement No. 141R (SFAS No. 141R). SFAS No. 141R requires most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” as of the acquisition date. SFAS 141R also establishes disclosure requirements designed to enable the users of the financial statements to assess the effect of a business combination. SFAS No. 141R is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. SFAS No. 141R will be applied to business combinations occurring after the effective date. The Company is required to adopt SFAS No. 141R in the first quarter of 2009.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161). SFAS No. 161 amends and expands SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 161 requires companies with derivative instruments to disclose their fair value and their gains and losses in tabular format and information about credit-risk related features in derivative agreements, counterparty credit risk and objectives and strategies for using derivative instruments. The new statements will be applied prospectively for periods beginning after November 15, 2008. The Company is required to adopt SFAS No. 161 in the first quarter of 2009 and is currently evaluating the impact that SFAS No. 161 will have on its financial statements.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, primarily relating to potential losses due to changes in interest rates. We seek to mitigate the effects of fluctuations in interest rates by matching the term of new investments with new long-term fixed rate borrowings whenever possible. We also have a $235 million unsecured revolving credit facility ~~and~~with $5 million outstanding as of March 31, 2008, a ~~$120~~$65 million term loan ~~that both~~and revolving credit facility with $12.7 million outstanding as of March 31, 2008 and a $119.4 million term loan, all of which bear interest at a floating rate. As further described in Note 6 to the consolidated financial statements in this Quarterly Report on Form 10-Q, the $12.7 million term loan includes $9.5 million of LIBOR based debt that has been converted to a fixed rate with two interest rate swaps and the $119.4 million term loan includes $114.0 million of LIBOR based debt that has been converted to a fixed rate with two interest rate swaps.

We financed the acquisition of our four Canadian properties with non-recourse fixed rate mortgage loans from a Canadian lender in the original aggregate principal amount of approximately U.S. $97 million. The loans were made and are payable by us in Canadian dollars (CAD), and the rents received from tenants of the properties are payable in CAD. We have also provided a secured mortgage construction loan totaling CAD ~~$65.9~~$75.4 million. The loan and the related interest income is payable to us in CAD.

We have partially mitigated the impact of foreign currency exchange risk on our Canadian properties by matching Canadian dollar debt financing with Canadian dollar rents. To further mitigate our foreign currency risk in future periods on the four Canadian properties, we have entered into foreign currency forward contracts with monthly settlement dates ranging from October 2007 through December 2007. These contracts have a notional value of $3.2 million CAD and an average exchange rate of $1.15 CAD per U.S. dollar. Additionally, during the second quarter of 2007, we entered into a cross currency swap with a notional value of $76.0 million CAD and $71.5 million U.S. The swap calls for monthly exchanges from January 2008 through February 2014 with us paying CAD based on an annual rate of 17.16% of the notional amount and receiving U.S. dollars based on an annual rate of 17.4% of the notional amount. There is no initial or final exchange of the notional amounts. The net effect of this swap is to lock in an exchange rate of $1.05 CAD per U.S. dollar on approximately $13 million of annual CAD denominated cash flows. These foreign currency derivatives should hedge a significant portion of our expected CAD denominated FFO of these four Canadian properties through February 2014 as their impact on our reported FFO when settled should move in the opposite direction of the exchange rates utilized to translate revenues and expenses of these properties.

In order to also hedge our net investment on the four Canadian properties, we entered into a forward contract with a notional amount of $100 million CAD and a February 2014 settlement date which coincides with the maturity of our underlying mortgage on these four properties. The exchange rate of this forward contract is approximately $1.04 CAD per U.S. dollar. This forward contract should hedge a significant portion of our CAD denominated net investment in these four centers through February 2014 as the impact on accumulated other comprehensive income from marking the derivative to market should move in the opposite direction of the translation adjustment on the net assets of our four Canadian properties.

To further mitigate our foreign currency risk in future periods on the interest income from the CAD denominated mortgage receivable, we have entered into foreign currency forward contracts with monthly settlement dates ranging from October 2007 through March 2008. These contracts have a notional value of $4.4 million CAD and an average exchange rate of $1.15 CAD per U.S. dollar. We have not yet hedged any of our net investment in the CAD denominated mortgage receivable or its expected CAD denominated interest income ~~beyond March 2008~~ due to the mortgage note’s maturity in 2008 and our underlying option to buy a 50% interest in the borrower entity.

Item 4.Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based

Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our disclosure controls were designed to provide reasonable assurance that the controls and procedures would meet their objectives. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusions of two or more people, or by management override of the control. Because of the inherent limitations in a cost-effective, maturing control system, misstatements due to error or fraud may occur and not be detected.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~third~~first quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item ~~1 .~~1. 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 1A. Risk Factors

There were no material changes during the quarter from the risk factors previously discussed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2006~~2007 filed with the SEC on February ~~28, 2007~~26, 2008 or, to the extent applicable, our Quarterly Report on Form 10-Q.

4538

Item ~~2 .~~2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Maximum
Total Number Number (or
of Shares Approximate
Purchased Dollar Value) of
as Part of Shares that
Total Publicly May Yet Be
Number of Average Announced Purchased
Shares Price Paid Plans or Under the Plans
Period Purchased Per Share Programs or Programs
July 1 through July 31, 2007 common stock — $ — — $ —
August 1 through August 31, 2007 common stock — — — —
September 1 through September 30, 2007 common stock 2,694 ⁽¹⁾ 50.16 — —

Total 2,694 $ 50.16 — $ —

Maximum

Total Number

Number (or

of Shares

Approximate

Purchased as

Dollar Value) of

Part of

Shares that May

Total

Publicly

Yet Be

Number of

Average

Announced

Purchased

Price Paid

Plans or

Under the Plans

Period

Purchased

Per Share

Programs

or Programs

January 1 through January 31, 2008 common stock

16,771

⁽¹⁾

46.33

—

February 1 through February 29, 2008 common stock

—

March 1 through March 31, 2008 common stock

26,199

⁽²⁾

53.19

—

Total

42,970

50.51

—


⁽¹⁾		The repurchase of equity securities during ~~September~~January of ~~2007~~2008 were completed in conjunction with the vesting of employee nonvested shares. These repurchases were not made pursuant to a publicly announced plan or program.

⁽²⁾		The repurchase of equity securities during March of 2008 was completed in conjunction with employee stock option exercises. These repurchases were not made pursuant to a publicly announced plan or program.

During the quarter ended March 31, 2008, we did not sell any unregistered securities.

Item 3. Defaults ~~upon~~Upon Senior Securities

There were no reportable events during the quarter ended ~~September 30, 2007.~~March 31, 2008.

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

There were no reportable events during the quarter ended ~~September 30, 2007.~~March 31, 2008.

Item ~~5 .~~5. Other information

There were no reportable events during the quarter ended ~~September 30, 2007.~~March 31, 2008.

Item ~~6 .~~6. Exhibits


			3.1			Articles Supplementary designating powers, preferences and rights of the 9.0% Series E cumulative convertible preferred shares, which is attached as Exhibit 3.1 to the Company’s Form 8-K (Commission File No. 1-13561) filed on April 2, 2008, is hereby incorporated by reference as Exhibit 3.1.

EXHIBIT INDEX


Exhibit No.		Document

3.1		Articles Supplementary designating powers, preferences and rights of the 9.0% Series E cumulative convertible preferred shares, which is attached as Exhibit ~~4.2~~3.1 to the Company’s Form 8-K (Commission File No. ~~001-13561)~~1-13561) filed ~~October 31, 2007,~~on April 2, 2008, is hereby incorporated by reference as Exhibit ~~4.2.~~3.1.

4.1		Form of 9.0% Series E cumulative convertible preferred share certificate, which is attached as Exhibit 4.1 to the Company’s Form 8-K (Commission File No. 1-13561) filed on April 2, 2008 is hereby incorporated by reference as Exhibit 4.1.

31.1*		Certification of David M. Brain, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Mark A. Peterson, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		Filed herewith.

4742

~~EXHIBIT INDEX~~


~~Exhibit No.~~		~~Document~~

~~4.1~~		Master Credit Agreement, dated as of October 26, 2007, among Entertainment Properties Trust, EPT 301, LLC, KeyBank National Association, as administrative agent and a lender, KeyBanc Capital Markets, as sole lead arranger and sole book manager, and the other lenders party thereto and Morgan Stanley Bank, as documentation agent thereto, which is attached as Exhibit 4.1 to the Company’s Form 8-K (Commission File No. 001-13561) filed October 31, 2007, is incorporated by reference as Exhibit 4.1.

~~4.2~~		Collateral Pledge and Security Agreement, dated as of October 26, 2007, by and between Entertainment Properties Trust and KeyBank National Association, individually and as administrative agent for itself and the lenders under the Master Credit Agreement dated October 26, 2007, which is attached as Exhibit 4.2 to the Company’s Form 8-K (Commission File No. 001-13561) filed October 31, 2007, is incorporated by reference as Exhibit 4.2.

31.1*		~~Certification of David M. Brain, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

31.2*		~~Certification of Mark A. Peterson, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

32.1*		~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

32.2*		~~Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~


*		~~Filed herewith.~~


	Page				~~Page~~
PART I				4

	Item 1.		Financial Statements		4
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2623
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk		4336
	Item 4.		Controls and Procedures		4437

PART II
~~PART II~~					4538

Item 1. Legal Proceedings		38
	Item 1.1A. Risk Factors		~~Legal Proceedings~~		4538
	~~Item 1A.~~		~~Risk Factors~~		45
	Item 2.		Unregistered Sale of Equity Securities and Use of Proceeds		4639
	Item 3.		Defaults Upon Senior Securities		4639
	Item 4.		Submission of Matter to a Vote of Security Holders		4639
	Item 5.		Other Information		4639
	Item 6.		Exhibits		4639
Certification of CEO
Certification of CFO
Section 1350 Certification
Section 1350 Certification of CFO


	Nine Months Ended September 30,				Three Months Ended March 31,
	2007		2006		2008		2007
Supplemental schedule of non-cash activity:
Acquisition of interest in joint venture assets in exchange for assumption of debt and other liabilities at fair value	$	136,029	$	—
Transfer of property under development to rental property	$	21,203	$	24,112	$	6,138	$	264
Issuance of restricted shares, including restricted shares issued for payment of bonuses	$	8,756	$	3,601

Issuance of nonvested shares at fair value, including nonvested shares issued for payment of bonuses					$	5,696	$	8,402
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	40,476	$	34,121	$	16,961	$	11,015
Cash paid during the period for income taxes	$	71	$	150	$	256	$	317

See accompanying notes to consolidated financial statements.


							March 31, 2008			December 31, 2007
	September 30, 2007			December 31, 2006			(Unaudited)
Buildings and improvements	$	1,394,207		$	1,189,676		$	1,413,824		$	1,412,812
Furniture, fixtures & equipment		20,956			8,147			26,882			25,005
Land		396,473			339,716			387,099			388,411

		1,811,636			1,537,539			1,827,805			1,826,228

Accumulated depreciation		(168,190	)		(141,636	)		(186,926	)		(177,607	)

Total	$	1,643,446		$	1,395,903		$	1,640,879		$	1,648,621


	2007		2006		2008		2007
Rental properties, net	$	22,534		22,995	$	22,304		22,765
Cash		100		116		83		99
Long-term debt		13,662		13,947		13,511		13,803
Note payable to Entertainment Properties Trust		117		117		117		117
Partners’ equity		8,657		8,838		8,573		8,747
Rental revenue		2,083		2,083		717		694
Net income		985		960		330		336


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


	2008
Rental properties, net	$	66,547
Straight-line rent receivable		3,312
Cash		—
Intangible Assets		9,038
Long-term debt		—
Partners’ equity		78,889
Rental revenue		2,746
Net income		2,005


Equity in losses of White Plains LLCs	$	177
Interest expense		811

Net loss	$	988


Cash paid for Class A Shares of the White Plains LLCs	$	10,475
Cash advanced to Capelli Group, LLC		20,000
Other cash acquistion related costs		816


Total investment	$	31,291


Rental properties	$	158,221
In-place leases		7,595
Other assets		1,504
Mortgage notes payable		(119,740	)
Unearned rents		(1,032	)
Accounts payable and accrued liabilities		(14	)
Minority interest		(15,243	)


Total net assets acquired	$	31,291


	Three Months Ended September 30, 2007								Nine Months Ended September 30, 2007
	Income			Shares		Per Share			Income			Shares		Per Share
	(numerator)			(denominator)		Amount			(numerator)			(denominator)		Amount
Basic earnings:
Income from continuing operations	$	26,350			26,432	$	1.00		$	73,518			26,378	$	2.79
Preferred dividend requirements		(5,611	)		—		(0.22	)		(15,701	)		—		(0.60	)
Series A preferred share redemption costs		—			—		—			(2,101	)		—		(0.08	)

Income from continuing operations available to common shareholders		20,739			26,432		0.78			55,716			26,378		2.11
Effect of dilutive securities:
Share options		—			317		(0.01	)		—			383		(0.03	)
Non-vested common share grants		—			75		—			—			97		(0.01	)

Diluted earnings: Income from continuing operations	$	20,739			26,824	$	0.77		$	55,716			26,858	$	2.07


Income from continuing operations available to common shareholders	$	20,739			26,432	$	0.78		$	55,716			26,378		2.11
Income from discontinued operations		—			—		—			4,017			—		0.15

Income available to common shareholders	$	20,739			26,432	$	0.78		$	59,733			26,378		2.26
Effect of dilutive securities:
Share options		—			317		(0.01	)		—			383		(0.03	)
Non-vested common share grants		—			75		—			—			97		(0.01	)

Diluted earnings	$	20,739			26,824	$	0.77		$	59,733			26,858	$	2.22


	Three Months Ended September 30, 2006								Nine Months Ended September 30, 2006
	Income			Shares		Per Share			Income			Shares		Per Share
	(numerator)			(denominator)		Amount			(numerator)			(denominator)		Amount
Basic earnings:
Income from continuing operations	$	20,663			26,298	$	0.79		$	60,406			26,093	$	2.32
Preferred dividend requirements		(2,916	)		—		(0.12	)		(8,747	)		—		(0.34	)
Series A preferred share redemption costs		—			—		—			—			—		—

Income from continuing operations available to common shareholders		17,747			26,298		0.67			51,659			26,093		1.98
Effect of dilutive securities:
Share options		—			369		—			—			322		(0.02	)
Non-vested common share grants		—			102		(0.01	)		—			96		(0.01	)

Diluted earnings: Income from continuing operations	$	17,747			26,769	$	0.66		$	51,659			26,511	$	1.95


Income from continuing operations available to common shareholders	$	17,747			26,298	$	0.67		$	51,659			26,093		1.98
Income from discontinued operations		53			—		0.01			488			—		0.02

Income available to common shareholders	$	17,800			26,298	$	0.68		$	52,147			26,093		2.00
Effect of dilutive securities:
Share options		—			369		(0.01	)		—			322		(0.02	)
Non-vested common share grants		—			102		(0.01	)		—			96		(0.01	)

Diluted earnings	$	17,800			26,769	$	0.66		$	52,147			26,511	$	1.97


	Previously
	Reported			Adjustment		As Adjusted
For the three months ended September 30, 2006
Rental revenue		41,019	*		343		41,362
Net income		20,373			343		20,716
Net income available to common shareholders		17,457			343		17,800
Diluted net income per common share		0.65			0.01		0.66

For the nine months ended September 30, 2006
Rental revenue		124,413	*		1,029		125,442
Net income		59,865			1,029		60,894
Net income available to common shareholders		51,118			1,029		52,147
Diluted net income per common share		1.93			0.04		1.97


~~Credit Agreement dated October 26, 2007,~~	31.1*	Certification of David M. Brain, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2*	Certification of Mark A. Peterson, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



	ENTERTAINMENT PROPERTIES TRUST

Dated: April 30, 2008	By	/s/ David M. Brain


	David M. Brain, President – Chief Executive Officer
	(Principal Executive Officer)

Dated: April 30, 2008	By	/s/ Mark A. Peterson


	Mark A. Peterson, Vice President – Chief
	Financial Officer (Principal Financial Officer
	and Chief Accounting Officer)


	~~ENTERTAINMENT PROPERTIES TRUST~~
~~Dated: October 31, 2007~~	~~By /s/ David M. Brain~~

	~~David M. Brain, President – Chief Executive~~ ~~Officer (Principal Executive Officer)~~



~~Dated: October 31, 2007~~	~~By /s/ Mark A. Peterson~~

	~~Mark A. Peterson, Vice President – Chief~~ ~~Financial Officer (Principal Financial Officer~~ ~~and Chief Accounting Officer)~~

~~Master Credit Agreement, dated as~~

Form of October 26, 2007, among Entertainment Properties Trust, EPT 301, LLC, KeyBank National Association, as administrative agent and a lender, KeyBanc Capital Markets, as sole lead arranger and sole book manager, and the other lenders party thereto and Morgan Stanley Bank, as documentation agent thereto,9.0% Series E cumulative convertible preferred share certificate, which is attached as Exhibit 4.1 to the Company’s Form 8-K (Commission File No. ~~001-13561)~~1-13561) filed ~~October 31, 2007,~~on April 2, 2008 is hereby incorporated by reference as Exhibit 4.1.

Collateral Pledge and Security Agreement, dated as of October 26, 2007, by and between Entertainment Properties Trust and KeyBank National Association, individually and as administrative agent for itself and the lenders under the Master