This past weekend's debut of The Batman was the best of times and the worst of times for AMC Entertainment Holdings (AMC -6.79%) and its smaller multiplex operating peers. The highly anticipated reboot of the popular superhero franchise delivered nearly $130 million in domestic ticket sales over its opening weekend, the largest debut by far for a new release in 2022.
However, that was less than half of the box office receipts that Spider-Man: No Way Home collected for its U.S. opening weekend less than three months ago. It's been a rough quarter for exhibitors, but with COVID-19 case counts falling sharply and The Batman playing on more screens than Spidey did in its December premiere, it is a bit of a letdown.
AMC will be fine. It has emerged from its pandemic troubles with enhanced liquidity, and movie studios have a rich pipeline of movies on the way. But given everything that AMC has had to sacrifice to get to where it is today, could the better ways to play the turnaround here be Imax (IMAX -0.61%) and EPR Properties (EPR -0.66%)? Switch on the projectors.
Image source: Getty Images.
The cameras are rolling
AMC is doing a lot of things right, gaining market share in its shaky industry and making the most of its meme status to transform its 4 million investors into customers. But because it has had to increase its share count nearly fivefold over the past two years to stay alive, it makes sense to consider the coattail plays that will benefit from the turnaround without diluting its shareholders the way that AMC has had to do.
Let's start with EPR Properties. This is a real estate investment trust (REIT) that owns income-generating properties. REITs pass on the majority of their profits to their stakeholders, and for EPR, that currently translates to a healthy yield of 6.4%. EPR Properties stands out from most other REITs in that it specializes in experiential properties. We're talking about museums, ski resorts, next-gen golf driving ranges, and movie theaters.
The silver screen is a big deal at EPR Properties, as multiplexes represent 45% of its contractual cash revenue. AMC is its biggest tenant, operating 46 of the 175 movie theaters that it owns and leases out to exhibitors. AMC accounted for 17.6% of the rents that EPR collected in 2019, the last full year of normal operations for the industry.
If you believe that AMC will succeed without having to file for bankruptcy, EPR will be a major beneficiary of the healthy flow of future lease payments that the theater chain will make. If you believe that AMC will thrive, then EPR will fare even better.
The upside isn't as high for EPR, but the same can be said about the downside. Both stocks peaked in June of last year. AMC is trading 77% below its high. EPR is trading just 8% lower, and more than half of that deficit has been offset by the monthly dividend distributions.
Imax is more of a pure play on what's succeeding at AMC these days. It's not a surprise that superhero films and action thrillers are dominating the box office. If folks go to the movies, it has to be a bigger-than-life experience that can't be duplicated easier from the comfort of home. There's a reason why family movies, romantic comedies, and dramas just aren't clicking with theatergoers anymore. Imax offers sensory-enhanced experiences, typically partnering with AMC to take over their largest screen or two at every major multiplex.
The recovery at Imax has been more apparent than at AMC. The $108.6 million in revenue that Imax delivered in its latest quarter was just 16% below its pre-pandemic return for the same fourth quarter two years ago. It was a 19% two-year decline at AMC. Analysts see Imax returning to profitability this year; they don't see AMC returning to profitability anytime soon. Imax also has a larger global footprint than AMC, giving it more skin in international markets that have already turned around.
This doesn't mean that you should dump your AMC stock and put the proceeds to work in Imax and EPR Properties. AMC continues to be the best-positioned investment among the pure movie theater stocks.
But with Imax standing tall as a pure play on the kind of movies that are working at the local multiplex, and EPR Properties rising as a high-yielding REIT with a big bet on the theater industry, they definitely should command the attention of folks who believe that Hollywood is back on the big screen.
