AMC's plex reflex

Megasale-leaseback to raise $384 mil

By MARTIN PEERS

NEW YORK --- AMC Entertainment Inc. plans to sell 17 of its biggest megaplex theaters for $384 million to a publicly traded real estate trust now being formed, enabling the exhib to pay off its debt and fund a new round of expansion.

The trust will lease the theaters back to AMC immediately after their sale so it won't affect operation of the plexes or AMC's share of their earnings. But it does open up a fresh source of funds for the exhib, whose current debt load of $404 million puts it close to the limit of its $425 million credit line. AMC stock rose 56¢ to $20 Wednesday.

Entertainment Properties Trust, as the real estate trust is called, filed a prospectus with the SEC Wednesday for a public stock offering aimed at raising about $275 million. The trust is managed by a former investment banker but its chairman is AMC chief financial officer Peter Brown, according to the SEC filing.

It said AMC has agreed to sell an initial lot of 12 megaplex theaters, with 282 screens, for $247 million. That money will come from the funds raised in the offering.

The dozen on the sale list include some of the biggest-grossing theaters in the country, such as the Grand 24 in Dallas, as well as the 30-screen Ontario Mills east of Los Angeles, which became the subject of industry debate about the dangers of overbuilding when Edwards Theatres built a rival megaplex across the street.

The trust plans to borrow another $200 million and will likely use $137 million of that money to buy another five theaters being built by AMC. The 17 theaters to be sold are all the megaplexes currently owned by AMC, which operates most of its 230 theaters on long-term leases with property developers.

Selling theaters and leasing them back is a common financing technique used by exhibs, and one Wall Street analyst said the creation of the Entertainment Properties Trust was essentially a giant version of a sale-and-leaseback. AMC simply pays rent on the theaters to the trust, so the sale won't affect the revenue and earnings the theaters generate.

The important aspect of the deal is that it will enable AMC to continue its building program without having to worry about funding. The SEC filing said the money raised from the initial sale would be used to pay down the credit line, which can be drawn down again.

"It frees up a lot of capacity for us," AMC's Brown said.

AMC spent $250 million on capital expenditure in building new theaters in fiscal 1997 and plans to spend $400 million in fiscal 1998, Brown said, so the new capacity will come in handy.

Not every exhib follows AMC's approach of leasing all its theaters, but Brown contended that "as an operating company we can generate higher returns on our capital investment in the operating business than can be generated in real estate."

The trust said in the filing that it will have the right to buy future theaters built by AMC if it wants to. The trust will also consider buying properties developed under AMC's new joint venture with Planet Hollywood, as well as properties built by other theater companies.

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