By Lorna Pappas

David Brain’s passion for innovation
sets the tone for originality and success at Entertainment Properties Trust (NYSE: EPR), the REIT that Brain founded based on that very passion for thinking outside set standards. He says his constant pursuit of innovative solutions is fueled by “new objectives and criteria, not history and precedents.”

According to Brain, who has served as Entertainment Properties’ CEO and president since 1999, “Our goals are best served by doing something different,
and we’re not afraid to try it.”

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Age: 51 Education: B.A. in Economics and MBA from Tulane University Family: Married for 17 years with four children ages eight to 16 Hobbies: Tennis, golf, skiing, biking and travel Vacation Preference: Somewhere he’s never been Most Recently Read Book: JFK’s Profiles in Courage Professional Activities: Director for Segway Experience, LLC; Board member and finance committee chairman of the Learning Exchange, a not-for-profit experiential learning program operator and laboratory; Board of governors, National Association of Real Estate Investment Trusts® (NAREIT); Previously board member for Capital for Entrepreneurs, Inc., the Center for Business Innovation, Inc., and the Council for Entrepreneurship at the University of Missouri at Kansas City. Community Activities: Assists in the revitalization of Tulane University and New Orleans; Supports several local middle school educational programs

When he was senior vice president in the investment banking department of George K. Baum & Company, Brain was fortunate to have a client that changed Brain’s career path: AMC Theaters.

Brain seized an opportunity to personally finance a megaplex theater development, risking his own savings on this new entertainment concept. Brain formed a specialty REIT to fund the megaplex model, launching Entertainment Properties in November 1997.

Today, the REIT is one of the largest owners of entertainment-based real estate in North America, with $1.4 billion of assets and a combined portfolio of 7.8 million square feet of acquired or developed entertainment-related properties in 25 states and Canada. At year-end 2006, Entertainment Properties’ 75 state-of-the-art megaplex theater properties provided 1,454 screens and more than 290,000 thousand seats via tenants such as AMC Theaters, Loews Cineplex and Wallace Theaters.

Non-theater properties include 1.5 million square feet of restaurants, retail centers and other destination recreational and specialty properties.

Entertainment Properties delivered a return of 52.0 percent during 2006. First quarter 2007 results showed a total revenue increase of 9 percent to $50.4 million, compared to $46.2 million for the same quarter in 2006. Funds from operations (FFO) for the first quarter increased 12 percent to $26.2 million from the $23.5 million reported for the same quarter last year.

Brain sat down with Portfolio to discuss Entertainment Properties’ portfolio of entertainment venues that capitalize on new advances in digital cinema presentation.

Portfolio: What attracted you to the entertainment properties industry?

Brain: It’s always a pleasure to do business with people who entertain others. It’s an upbeat industry, and I like being around all the excitement involved with entertainment. Cinema is one of America’s most popular pastimes, and being a part of its evolution and development is very thrilling. I’m a financial guy tuned in to an artistic world.

My background as an investment banker and love for structuring deals also gives me great satisfaction in this industry. Additionally, I enjoy the challenges and rewards of the entertainment property market.

Portfolio: How do you see yourself as an innovator today?

Brain: I believe my focus on novel strategies is behind the addition of several different property types to the standard Entertainment Properties portfolio mix. In 2006, the company financed the acquisition of Crotched Mountain Ski Resort in Bennington, N.H., and in 2005 the Mad River Mountain ski area in Bellefontaine, Ohio. We also purchased a winery in 2006, investing approximately $7 million in Havens Wine Cellars, a premium vineyard in Napa Valley, Calif. Now we’re looking at amphitheatres, water parks and other out-of-home entertainment destination properties.

Portfolio: Why do you think ski resorts are good investment opportunities?

Brain: There have been several reconfigurations of traditional ski properties that offer great opportunities for the smart investor. There is a lot of change in the ski industry that is driven by generational forces. For example, snow boarding continues to grow in popularity and boarders are content with man-made snow. They are less concerned with vertical drop, which makes convenient destinations—not topographical ones—the real winners in the ski industry.

Portfolio: As you said earlier, Entertainment Properties acquired Havens Wine Cellars last year. Why did you decide to add a winery to your portfolio?

Brain: Wine is the fastest growing segment in the spirits industry and primarily operates on a leased-land basis where vintners do not own the land outright. We believe this model will soon spread throughout the United States. Those who are knowledgeable and experienced in this industry will generate a substantial business and create value for shareholders, and we are preparing for more of these opportunities.

Portfolio: As you expand into other out-of-home segments, will cinema continue to be your core business?

Brain: Definitely. We believe very strongly that the best days of first-run movies are still to come, and are very excited by the megaplex and first-run exhibition industry as major investment and anchor opportunities.

We chose the name “Entertainment Properties” to reflect the prospects offered by various entertainment segments. As we broaden our scope by pursuing these opportunities, we remain very bullish on the cinema industry, where the vast amount of our activity takes place. Investments like ski resorts and wineries that are atypical of our customary venues simply illustrate Entertainment Properties’ willingness to bypass precedent to reach established company goals and create more value for shareholders.

Investors and analysts that see these portfolio expansions as reduced enthusiasm in Entertainment Properties’ traditional core cinema business are wrong. We are widening our universe with parallel opportunities in other industries, which departs from Entertainment Properties’ history and standards, but we think this route will be a worthwhile complement to our pioneering work in the cinema segment.

Portfolio: How is digital technology impacting the cinema business?

Brain: Digital cinema is now a reality, and we are poised for the payoff from this innovative trend. Digital technology’s higher resolution provides a better viewing experience, increases attendance, lengthens the long-term viability of our properties and helps reduce the $2.5 billion a year spent by theater properties on film distribution. Lower distribution costs open a whole new range of creative cinema alternatives. That means independent films can be produced on smaller budgets and there is potential for a movie to make various amounts of revenue at the box office on different weekends.

Previously, the entertainment product only came from Hollywood, but now it comes from multiple sources with digital presentation, giving wider utilization to our theater properties. Lectures, college football and basketball games, political rallies, corporate product introductions and other presentations can easily take place in cinemas equipped with digital equipment.

Digital cinema technology has rolled out to approximately 10 percent of U.S. screens and will continue to pick up speed. I expect the majority of U.S. screens to be digital by the end of this decade.

Portfolio: What does this mean to the company’s bottom line?

Brain: With greater flexibility, utilization and increased attendance, properties have longer-term viability and should pay higher returns for shareholders. New digital technologies also offer financing opportunities for Entertainment Properties. We could get involved in digital equipment as part of the financing package we provide. Since we are a REIT, we can have taxable subsidiaries engaged in non-real estate businesses related to the business on the real estate property.

Portfolio: What are the innovative features of Entertainment Properties’ current project in Toronto?

Brain: This theater-anchored, mixed-use destination located in Toronto’s Dundas Square, with 400,000 square feet of horizontal space on 13 levels, will host the largest pedestrian-oriented video board in all of Canada. It’s a 25,000-square-foot video billboard space that will create an additional, ongoing revenue stream above and beyond the physical building itself.

Furthermore, the project’s 3,500-seat AMC Theater will serve as classroom space for Toronto’s Ryerson University during the day, also providing an enhanced revenue stream. We are breaking new ground with this daytime use of a movie theater for educational purposes and are looking to apply this strategy elsewhere.

Portfolio: With so much going on at your company, what occupies your spare personal time?

Brain: As a graduate of New Orleans’s Tulane University, I am dedicated to the strength of the school. I contribute to its comeback, specifically with projects and financial support that will help draw the best and the brightest back to the school and city. New Orleans is one of the most exotic places in the United States, and I am committed to helping the university play a role in the city’s revitalization.

As for other activities, I’m an avid traveler and a frequent guest on financial news programs like CNBC and CNN when the movie season heats up in the summer. I enjoy supporting several local middle school educational programs and spend as much free time as possible with my family. In fact, I enjoy nothing more than family and fatherhood.

Portfolio: What advice do you give your children?

Brain: I tell them to think independently, always have the courage to be creative and don’t be afraid to do something if it has good merit, whether or not other people are doing it. This is great advice for them, and the guiding principles by which I’ve run this company.