Movie-House Investor Dives Into the Charter-School Space

A real estate investment trust that works mostly in the megaplex movie-theater business is quickly learning that the charter-school industry is a smart place to put its money these days.

Entertainment Properties Trust (NYSE: EPR  ) , a landlord for AMC Entertainment, Cinemark Holdings (NYSE: CNK  ) , and Rave Cinemas, reported 5% higher revenues of $74.4 million during the second quarter and plans on potentially tripling its current portfolio of 33 public charter schools, up to a range of 50 to 100, over the next 18 months. The spending would represent an investment of between $5 million to $7 million on a per-school basis.

Entertainment Properties, like competitors Realty Income (NYSE: O  ) and National Retail Properties (NYSE: NNN  ) , relies on long-term, triple-net leases that deflect the costs of maintenance, property taxes, and insurance off the landlord and onto the tenant. The company is currently developing six public charter-school properties, all of which are subject to long-term triple-net leases upon delivery.

In the 2009-2010 school year, just 30% of U.S. charter schools were managed by nonprofit or for-profit entities; the rest were freestanding, according to a report from the National Alliance for Public Charter Schools. Entertainment Properties' tenant in the charter-school space is Imagine Schools, the largest for-profit provider.

Each tuition-free charter school is governed independently, and unlike traditional public schools, every charter school must demonstrate success or its charter can be revoked. About 5% of all public schools are charter schools, according to the alliance, adding that charter-school growth has remained steady at about 6% from school year to school year.

Out of the more than 5,200 charter schools across the 41 states authorized to have them, Entertainment Properties owns properties in about a fourth of those states. Deciding where to plant schools next is a combination of the financial health of the state and the outlook of funding for the schools. "They are a creature of state legislation," said CEO David Brain.

Although its 112 theaters still anchor 60% of its business, in 2005 Entertainment Properties started to broaden its portfolio by eventually adding ski parks, vineyards, and charter schools into the mix. Not all of its business decisions have been great; the company failed to find success in wine investments, and it's now in the process of exiting that mistake by liquidating its 11 vineyards across the United States over the next two years.

A related $34.3 million impairment charge affected its funds from operations, a metric commonly used to measure the health of REITs, which was $4.4 million, or $0.09 per diluted common share last quarter, compared with $21.7 million, or $0.48 per diluted common share, for the same quarter in last year.

If none of this gives you the itch to buy, it may still be worthwhile to keep an eye on Entertainment Properties Trust. You can add any of these stocks to your Foolish watchlist by clicking the "+" icons above. Don't have a watchlist yet? Set one up today for free.

Fool contributor Tierney Plumb holds no positions in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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