Published:
October 6, 2008
Entertainment Properties Trust (NYSE: EPR,
$48.81) is a real estate investment trust
(REIT) that owns and leases entertainment properties, including
79 megaplex movie theaters across the U.S. and in Canada. The
megaplex theaters, which account for most of the company's
revenue, are fully occupied and most are under long-term leases,
which provide a predictable revenue stream. About half of the
leases are held by American Multi-Cinema (AMC) and the balance
by some 20 different operators.
This trust's diverse $2 billion real
estate portfolio also contains eight entertainment-themed retail
centers, six vineyards, and 12 public charter schools. The
company also invests in entertainment-related mortgage notes.
Dividend: EPR has paid dividends at an increasing
rate for the past decade. It raised its annual payout from $1.60
per share in 1998 to $3.36 today -- a +110% boost. The quarterly
dividend jumped +10.5% to $0.84 share in March. That gives the stock a forward
yield of almost 6.9% at
current prices ($3.36/$48.81).
The $3.36 projected payout represents only 73% of estimated
funds from operations of around $4.60 in 2008, leaving ample
room for further dividend increases down the road. To avoid
paying corporate income taxes, REITs like EPR must pass along at
least 90% of their taxable income to shareholders. Most of this
income is taxable at the ordinary income tax rate, making the
shares suitable for a tax-deferred IRA type of account. EPR does
have a dividend reinvestment program in place and you can phone
800-884-4225 for more information on this program.
Performance: Earnings have climbed an average +13%
annually over the past three years. Most of the income is
secured by long-term leases structured as so-called "triple net"
leases. As explained in today's "Featured Topic" column below,
triple net leases typically provide a base rent with built-in
increases for inflation. The leases also transfer to the tenant
the responsibility for paying operating costs, including
maintenance, taxes and utilities.
The company has grown by acquiring and developing movie
theaters. In the past two years, the company purchased 12
entertainment properties with movie screens and also completed
the development of seven new megaplex theaters. As a result, the
company's total screens have increased from 804 in 2002 to 1,525
at the end of 2007. Rental growth from new screens has risen in
tandem, boosting funds from operations (FFO) per share from $2.62 in 2003 to $4.18 last
year.
Outlook: In its latest earnings report management
gave upbeat guidance, increasing its previously announced
forecast for funds from operations per share from a range of
$4.52-4.62 to a new range of $4.55-4.62, up around +10% over
last year.
The increase reflects the company's strong ongoing performance
so far this year and the impact of new investments in charter
public schools and vineyards made in the second quarter of the
year. Investment income from the company's growing portfolio of
entertainment-related mortgage loans is also contributing to a
larger portion of earnings.
Acquisitions and development may slow if the economy continues
to weaken in 2009, and the success of company's more recent
investments in charter public schools, wineries, and mortgage
loans remains to be seen. However, the trust's long-term leases
should continue to throw off a steady income stream that will
support dividends and make the trust relatively recession-proof.
EPR offers a moderate risk investor a relatively secure dividend
supported by long-term rental leases and the potential for both
dividend growth and share price appreciation.
Good investing!
Carla Pasternak
Editor
High-Yield
Investing
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