Upbeat at the Movies

As Oscar night looms, Entertainment Properties Trust (EPR ) is sitting pretty. No, it isn't a filmmaker. It's a real estate investment trust specializing in megaplex theaters (with 16 or more screens). Big Board-listed EPR leases buildings to cinema operators, and since July its stock has leaped from 18 to 24, as the overall market tanked. Because REITs pay out the bulk of their operating cash flow to shareholders, the stock provides a 7.6% dividend yield. "EPR has ranked among our top REITs in each of the past five years -- and this trend will continue in 2003," says David Kostin of Goldman Sachs, which took EPR public in 1997. With the growing popularity of movies, especially among teenagers, box-office has boomed, climbing 14% in 2002.

EPR's hefty returns are fueled in part by acquisitions. The company added 11 theaters in 2002, increasing the total to 37 megaplexes in 16 states. "The key to this business is location, location, so we will buy more properties in attractive areas," says CEO David Brain. Some 76% of EPR's theaters are leased to AMC Entertainment. Other tenants include Regal Cinemas and Loews Cineplex. There are about 430 megaplexes in the U.S. Jay Leupp of RBC Capital Markets, who rates EPR outperform, says it trades at a low price-earnings ratio of 8.9, based on estimated operating cash of $2.64 a share, vs. 9.5 for its peers. As the only theater REIT, "we expect EPR to benefit from industry consolidation," says Leupp.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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