One area I have been looking to invest in is convertibles (bonds or preferred stock) – the yield component is appealing in distressed securities, and the embedded call option can offer upside exposure to some decent businesses. Although I’ve been enjoying the benefits of having a higher cash balance and little equity exposure, I hold cash to make strategic purchases, not as an end itself.

Those of you who have read what I’ve written regarding Primus (PRS, PRD) know that I’m a fan of “stress testing” in circumstances where it’s possible – basically, seeing what kind of hit is priced into a company’s stock. In this case, the company had a nice dividing line between its traditional core assets and a handful of newer investments that have been problematic.

The company is Entertainment Properties Trust (EPR), a REIT that primarily owns movie theaters occupied by tenants like AMC. As the chart below indicates, sellers have been firmly in control here since the start of October. The common is down 50% year-to-date.

This selling comes as movie theater box office receipts are up around 20% year-over-year. We’re only two months into the year, but revenue growth like that is extraordinary, all things considered. As a REIT that earns 75% of its rental revenue from theaters, having financially healthy operators is a must – and one of their largest tenants, AMC, has seen its debt rally significantly of late.