When I was six my grandfather retired from his job as President of Famous Players, the largest cinema chain in Canada. He spent his entire life in the entertainment business and it rubbed off on me to the extent I love movies and pretty much anything else entertainment related; which brings me circuitously to today’s financial services pick – Entertainment Properties Trust (EPR), the largest owner of entertainment related real estate in North America.

Their properties cover 7.1 million square feet of real estate with assets totaling $1.4 billion. Tenants include Loews Cineplex. AMC Theaters, and Regal Entertainment, which I talked about in a post in April. If you enjoy movies, you’ve definitely been in one of their theatres. They own a bunch, 77 to be exact, with 1485 screens in total. The average theatre has 19 screens, most less than five years old. We’re talking about modern facilities with all the amenities. Movie theatres represent 61 percent of the company’s total revenue. The remaining 39 percent comes from a whole lot of real estate development in Kansas City where their headquarters are located and other parts of the country.

Entertainment Properties management understand the market in which they compete. Despite the fact they are a real estate trust, they provide much more to any prospective acquisition or development opportunity. Yes, they do bring a boatload of money to the table but more importantly, they live for entertainment. They know the end user customer demands a quality experience every visit and work with their partners to ensure this happens 100 percent of the time. It’s no wonder their slogan is Five Star Properties.

Here are the Top 5 reasons to like this stock:

1. The annual dividend is $3.04, providing a 5.40 percent yield on the stock. That’s great for income investors.
2. CGM Realty Fund, managed by Ken Heebner (one of America’s best money managers), holds five percent of the stock.
3. Sales in the past 10 years have grown from nothing in 1997 to $168 million in 2006. In the same period, EBIT (earnings before interest and taxes) has grown 8200 percent from $1 million to $82 million last year.
4. Funds from operations (a commonly used term for REITs) increased 10 percent in the first quarter.
5. The return on assets in 2006 was 5.2 percent, the highest level in company history.

Entertainment Properties Trust sales are slowing. The movie megaplex part of their business, which currently is a majority of their revenue, is mature and will not grow more than five or six percent annually. In order to compensate for this, the company has sought opportunities outside the theatre arena, both in the form of equity investment (City Center at White Plains) and mortgage investments (Mt. Snow). Three or four years down the road, we’ll see the results of their diversification efforts. I believe they’ll have no problem meeting the challenge.