Entertainment Properties Trust buries the hatchet__»

June 25, 2010

In the 8-K that real estate investment trust Entertainment Properties Trust (EPR) filed yesterday, the company reported that last Friday it resolved its legal disputes with Louis Cappelli. The settlement — which included numerous agreements — terminated the pending lawsuits and restructured the company’s investments with Cappelli and his affiliates.

The dispute was a doozy. Here’s a part of the company’s account, found in Exhibit 99.2, a Regulation FD Disclosure attached to the 8-K:

—During the first quarter of 2010, we determined that our minority joint venture partner in New Roc, an affiliate of Mr. Cappelli, who was also the property manager, made an unauthorized short-term loan to itself from the partnership for approximately $700 thousand. This loan was not repaid during the first quarter of 2010 according to its terms. We determined that this loan should be fully reserved and thus recorded a provision for loan loss of $700 thousand during the three months ended March 31, 2010.—

Entertainment Properties Trust sued Cappelli and his affiliates on December 31, 2009. It sought to recover money allegedly owed under —various loans, including a $133.1 million mortgage note owed by Concord Resort, LLC (a Cappelli-controlled entity) that related to the development of a casino and resort in Sullivan County, New York. It also asked the court for a declaratory judgment so that —no further investments are required to be made by us under any prior commitment to Mr. Cappelli or any of his affiliates.

Cappelli didn—t take kindly to the lawsuit or the allegation that the $700,000 loan was either improper or unauthorized. He also alleged the company had damaged his reputation by making false statements to Wall Street analysts. In an interview with New Rochelle’s —Talk of the Sound website (article here), Cappelli said the money was needed to develop the business plans that Target and Kohl’s would expect to see before they signed leases in the shopping center.

Cappelli and his affiliates sued Entertainment Properties Trust on April 9, 2010, asking the court to grant (per the SEC filing) ——declaratory relief, derivative relief and money damages with respect to the Sullivan County casino project and the City Center entertainment retail center in White Plains, New York.

According to the filing, the settlement ——represents a significant restructuring of our relationship with Mr. Cappelli by consolidating our various investments with Mr. Cappelli into wholly owned investments in the Concord resort property and the New Rochelle, New York entertainment retail center.

It’s too complicated to set out point by point, but for those who want the details, see page 4 of this document. We will give away one thing, though: Entertainment Properties Trust forgave the $700,000 loan as part of the settlement.

Image source: Anemone Nemorosa via Flickr

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