READING INTERNATIONAL, INC. 
General COVID-19 Pandemic Updated & Overview
COVID-19 Impact on our Cinema Business
InMarch 2020 , as a result of the COVID-19 pandemic, all of our cinemas inthe United States ,Australia, and New Zealand were forced to temporarily close by government mandate, ultimately causing an immediate halt to our cinema income. Since the onset of the pandemic, a majority of our cinemas have reopened (most with occupancy restrictions in place). As of the date of this Report, 57 of our 62 global cinema circuit are open: 22 of our 24 cinemas inthe United States , all of our 26 cinemas inAustralia , and 9 of our 12 cinemas inNew Zealand . Of the cinemas that remained closed, two cinemas have been closed since before the onset of the pandemic: one (inHonolulu at theKahala Mall ) for a major renovation and the other (in Courtenay Central,Wellington ) to address seismic issues. Pleasingly, all of our Australian cinemas were able to reopen again after the government mandated response to the presence of theCOVID-19 Delta variant. These closures have had a material negative impact on our box office results, cinema attendances and the wider cinema industry in general. Cinemas have, in large part, reopened as the pandemic has abated, but attendances are still below pre-pandemic levels due to a variety of factors, including social distancing requirements, public reticence to participate in group activities, competition from streaming services and until relatively recently, the lack of strong film product. Patrons who have returned are responding well to our expanded food and beverage offerings, as spend per caps continue to strengthen. The industry has, in recent months, experienced a positive shift in box office results with the releases of more traditional blockbuster movies to cinemas, such as Shang-Chi and the Legend of the Ten Rings, Venom: Let there be Carnage and No Time to Die. The performance of these films has provided optimism for the cinema industry.
COVID-19 Impact on our Real Estate Business
Our real estate business has been less impacted, and virtually all of our tenants are currently paying full rents. As of the date of this Report, 96% of our tenants in our Australian andNew Zealand real estate businesses are currently open for trading (some with trading restrictions in place). STOMP reopened at ourOrpheum Theater inNew York onJuly 20, 2021 , and Audible, an Amazon company, continues to license ourMinetta Lane Theater inNew York , and resumed public performances onOctober 8, 2021 . We began receiving rental income from ourCulver City tenant inOctober 2020 , income which did not exist prior toOctober 2020 . With regard to our44 Union Square property, COVID-19 has severely constrained leasing activity inManhattan , and no assurance can be given that we will be able to lease the space on acceptable terms in the near term. Our progress regarding this property is discussed in our Real Estate overview. As for our other real estate holdings, subject to capital availability and assuming a return to normalcy, we will once again put emphasis on developing and enhancing our Courtenay Central,Cannon Park , and Newmarket ETCs, our Cinemas 1,2,3, property, and ourPhiladelphia Viaduct properties.
As discussed in Note 6 to the financial statements and below, we monetized certain real estate assets that had maintained their value despite the effects of the COVID-19 pandemic, and which would have required material capital investment to have achieved increases in value.
Management's Response to the Challenges of COVID-19
In response to lower cash inflows from our cinema businesses, our Company reviewed our real estate portfolio to identify assets that had not been adversely impacted by the pandemic and which would require material capital investment to generate any material increase in value. These asset monetizations are detailed at Note 6 to the financial statements. We have used the proceeds from the sale of these properties to pay down debt, to cover operating expenses, to fund limited capital improvements, and to strengthen our liquidity. AtSeptember 30, 2021 , we had cash and cash equivalents totaling$90.9 million , compared to$26.8 million atDecember 31, 2020 . We have been able to maintain most of our assets and keep our key personnel in place as we reopen our cinemas. Generally speaking, our lenders and landlords continue to work with us, and we continue in occupancy in all of our cinemas and have not lost any cinema assets as a result of the COVID-19 pandemic. We continue to be in discussions with our landlords about rent abatements and/or deferrals. We have a variety of landlords, and these discussions are being progressed on a location-by-location basis. Further, our relationships with our film suppliers continue to be strong. 35 -------------------------------------------------------------------------------- We have taken a number of significant steps to preserve our liquidity, and we will continue to evaluate our operations as the pandemic continues. We modified our business strategy in order to ensure our long-term viability in a way that would not have a dilutive impact on our stockholders, overleverage our Company, or require that we fire sale assets. In arriving at the determination to rely upon the monetization of certain real estate assets to bridge this gap in cinema cashflow (which has in 2021 produced net proceeds to our Company of$139.4 million ) and to reduce our need to make capital expenditures, we considered a variety of alternatives, including the issuance of additional common stock and the issuance of high interest rate "junk" debt. We determined that it would be in the best interests of our Company and our stockholders to not dilute equity by issuing stock in the middle of an unprecedented pandemic and to not mortgage our future with high interest rate debt.
In Conclusion
With the development and distribution of a variety of vaccines, and a government focus on reopening the social aspects of our lives, we anticipate that the impact of the COVID-19 pandemic on our results of operation will be a passing event in the long-term, and we believe that we will ultimately return to results that resemble those of the pre-pandemic era in the future. However, no assurance can be given that we will achieve these results and, unfortunately, there is still a risk of future global outbreaks of COVID-19 and its associated variants, such as the Delta variant, which we are currently witnessing. Where vaccine roll outs have been limited in distribution, such as inAustralia and New Zealand , these variant outbreaks could impact those countries, and our business in those countries, to a higher degree.
BUSINESS OVERVIEW
We are an internationally diversified company principally focused on the
development, ownership, and operation of entertainment and real estate assets in
?Cinema exhibition, through our 62 cinemas.
?Real estate, including real estate development and the rental of retail, commercial, and live theatre assets.
We have consistently stated our belief that these two business segments complement one another, as we have used the comparatively consistent pre-COVID-19 cash flows generated by our cinema operations to fund the front-end cash demands of our real estate development business. Currently, we are relying more upon income from our real estate assets, and the imbedded value in those assets, to support our Company through the COVID-19 crisis. As we continue to navigate the uncertainty and challenges posed by the global COVID-19 pandemic, including the emergence of new variants, we are steadfast in our belief that this two-pronged, diversified international business strategy has supported the strength and long-term viability of our Company.
Key Performance Indicators
A key performance indicator utilized by management is F&B Spend Per Patron
("SPP"). Upgrading our F&B menus at a number of our global cinemas is one of our
strategic priorities. We use SPP as a measure of our performance as compared to
the performance of our competitors, as well as a measure of the performance of
our F&B operations. While ultimately, the profitability of our F&B operations
depends on a variety of factors, including cost of goods sold and labor cost, we
think that this calculation is important to show how well we are doing on a top
line basis. Due to the COVID-19 pandemic and the temporary closure of our cinema
and live theatre operations in the U.S. , Australia, and New Zealand for a
substantial portion of the year ended December 31, 2020 , and partially through
the nine months ended September 30, 2021 , and due to the lower attendances
resulting from social distancing requirements, the lack of new and compelling
film product, and the reticence of customers to participate in social gatherings
with third parties, management does not currently believe that a discussion of
Reading's key performance indicators will serve as a useful metric for
stockholders. Management intends to resume providing a discussion of our key
performance indicators in the future.
?
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Cinema Exhibition Overview
We operate our worldwide cinema exhibition businesses through various subsidiaries under various brands:
?in the
?in
?in
Shown in the following table are the number of locations and screens in our
cinema circuit in each country, by state/territory/region, our cinema brands,
and our interest in the underlying assets as of
Interest in
Asset
State / ?Underlying the
Territory / Location Screen Cinema
Country Region Count Count Leased Owned Operating Brands
United States Hawaii 9 98 9 Consolidated Theatres
Reading Cinemas,
California 7 88 7 Angelika Film Center
New York 3 16 2 1 Angelika Film Center
Texas 2 13 2 Angelika Film Center
New Jersey 1 12 1 Reading Cinemas
Virginia 1 8 1 Angelika Film Center
Washington,
D.C. 1 3 1 Angelika Film Center
U.S. Total 24 238 23 1
Australia Victoria 8 57 8 Reading Cinemas
New South
Wales 6 44 5 1 Reading Cinemas
Reading Cinemas, Event
Queensland 6 56 3 3 Cinemas(1)
Western
Australia 2 16 1 1 Reading Cinemas
South
Australia 2 15 2 Reading Cinemas
Reading Cinemas, State
Tasmania 2 14 2 Cinema
Australia
Total 26 202 21 5
New Zealand Wellington 3 18 2 1 Reading Cinemas
Reading Cinemas, Rialto
Otago 3 15 2 1 Cinemas(2)
Reading Cinemas, Rialto
Auckland 2 15 2 Cinemas(2)
Canterbury 1 8 1 Reading Cinemas
Southland 1 5 1 Reading Cinemas
Bay of Plenty 1 5 1 Reading Cinemas
Hawke's
Bay 1 4 1 Reading Cinemas
New Zealand
Total 12 70 8 4
GRAND TOTAL 62 510 52 10
(1)Our Company has a 33.3% unincorporated joint venture interest in a 16-screen
cinema located in Mt. Gravatt,
(2)Our Company is a 50% joint venture partner in two New Zealand Rialto Cinemas, with a total of 13 screens. We are responsible for the booking of these cinemas and our joint venture partner, Event Cinemas, manages their day-to-day operations. Our cinema revenues consist primarily of admissions, F&B, advertising, gift card purchases, cinema rentals, and online convenience fee revenue generated by the sale of our cinema tickets through our websites and mobile apps. Cinema operating expenses consist of the costs directly attributable to the operation of the cinemas, including film rent expense, operating costs, and occupancy costs. Cinema revenues and expenses fluctuate with the availability of quality first run films and the numbers of weeks such first run films stay in the market. For a breakdown of our current cinema assets that we own and/or manage, please see Part I, Item 1 - Our Business of our 2020 Form 10-K. We now present a discussion of recent material developments.
Cinema Additions and Pipeline
The latest additions to our cinema portfolio as of
?Millers Junction,Victoria, Australia : OnJune 16, 2021 , we opened a new state-of-the-art six screen Reading Cinemas at the expandedMillers Junction Village featuring two TITAN LUXE auditoriums with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and an enhanced F&B offering.
?Jindalee,
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Pursuant to an existing agreement, during 2022, we anticipate receiving
hand-over from the landlord at
With respect to our agreement to lease for a five-screen cinema in Traralgon (VIC), the landlord, who is a local landowner in Traralgon (VIC), was delayed in his delivery of the base building construction. Following these landlord delays, circumstances related to the COVID-19 pandemic caused further delays in completing the cinema development. We are having ongoing discussions with the landlord about the enforcement of his obligations under agreement to lease and our desire to open the Reading Cinema in Traralgon before the end of 2021.
Cinema Upgrades
As ofSeptember 30, 2021 , all of the upgrades to our cinema circuits' film exhibition technology and amenities over the years are as summarized in the following table: Location Screen ?Count ?Count Screen Format Digital (all cinemas in our cinema circuit) 62 510 IMAX 1 1 TITAN XC and LUXE 26 32 Dine-in Service Gold Lounge (AU/NZ)(1) 9 24 Premium (AU/NZ)(2) 16 42 Spotlight (U.S.)(3) 1 6 Upgraded Food & Beverage menu (U.S.)(4) 16 n/a Premium Seating (features recliner seating) 28 173 Liquor Licenses (5) 36 n/a (1)Gold Lounge : This is our "First Class Full Dine-in Service" in our Australian andNew Zealand cinemas, which includes an upgraded F&B menu (with alcoholic beverages), luxury recliner seating features (intimate 25-50 seat cinemas) and waiter service. (2)Premium Service: This is our "Business Class Dine-in Service" in our Australian andNew Zealand cinemas, which typically includes upgraded F&B menu (some with alcoholic beverages) and may include luxury recliner seating features (less intimate 80-seat cinemas), but no waiter service. (3)Spotlight Service: Our first dine-in cinema concept in theU.S. at Reading Cinemas inMurrieta, California . Six of our 17 auditoriums at this cinema feature waiter service before the movie begins with a full F&B menu, luxury recliner seating, and laser focus on customer service. Our Spotlight service has been temporarily suspended since the initial COVID-19 shutdown. (4)Upgraded Food & Beverage Menu: Features an elevated F&B menu including a menu of locally inspired and freshly prepared items that go beyond traditional concessions, which we have worked with former Food Network executives to create. The elevated menu also includes beer, wine and/or spirits at most of our locations. (5)Liquor Licenses: Licenses are applicable at each cinema location, rather than each cinema auditorium. As ofSeptember 30, 2021 , we have pending applications for additional liquor licenses for eleven cinemas in theU.S.
Our current enhancement projects are:
?Kahala Mall renovation: In late 2019, we commenced the renovation of ourConsolidated Theatre at theKahala Mall inHonolulu . The renovation work was suspended at the end of the first quarter in 2020 as a result of the initial COVID-19 shutdown. When reopened, the theatre will feature recliner seating throughout along with a state-of-the-art kitchen and an elevated F&B menu. This cinema reopened onNovember 5, 2021 , with the opening of theHawaii International Film Festival . The festival is anticipated to attract thousands of film enthusiasts over its ten-day run. ?Kapolei renovation: During the second quarter of 2021, we commenced the renovation of ourConsolidated Theatre inKapolei , which will feature recliner seating and an elevated F&B menu. We expect to reopen this theatre by the end of the fourth quarter of 2021. ?Luxury seating conversions: We have converted 102 of our 238 U.S. auditoriums to luxury recliner seating. We anticipate that the completion of ourKapolei theatre renovation will account for at least an additional 8 auditoriums converted to luxury recliner seating. We continue to enhance our proprietary online ticketing and F&B capabilities, improve our contactless experiences, and develop our social media platforms. Our goal is to enhance the convenience and safety of our offerings while promoting guest affinity with our brands. 38
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Cinema Closures
Temporary cinema closures as a result of COVID-19 are discussed below. We have not permanently closed a cinema in the periods presented in this Report.
InJanuary 2019 , we temporarily closed our Courtenay Central cinema inWellington, New Zealand . This temporary closure is related to seismic concerns and is currently ongoing. Our plans for this cinema and our related properties are discussed further in our Real Estate Overview.
Real Estate Overview
Through our various subsidiaries, we engage in the real estate business through the development and ownership and rental or licensing to third parties of retail, commercial, and live theatre assets. Our real estate business creates long-term value for our stockholders through the continuous improvement and development of our investment and operating properties, including our ETCs. As ofSeptember 30, 2021 , we own the fee interests in both of our live theatres and in 10 of our cinemas (as presented in the preceding table). In addition, we: ?owned our44 Union Square property with approximately 73,000 square feet of net leasable area comprised of retail and office space.44 Union Square is currently in the leasing phase, and we received a temporary certificate of occupancy with respect to the core and shell work onAugust 31, 2020 ;
?owned and operated four ETCs known as
?owned and operated our administrative operations center building inCulver City and, during the second quarter 2020, entered a multi-year lease with a corporate tenant for the entire second floor;
?owned and operated our headquarters office building in
?owned and operated the fee interests in two developed commercial properties in
?owned a 75% managing member interest in a limited liability company which in turn owns the fee interest in and improvements constituting Cinemas 1,2,3;
?owned 197-acres principally in
?have exercised our option to purchase the improvements and ground lease
comprising our cinema, Village East by Angelika, and headquarters building at
For a breakdown of our real estate assets, made current by our discussion below, please see Part I, Item 1 - Our Business of our 2020 Form 10-K. We now present a discussion of recent material developments. ? Strategic MonetizationsUnited States : ?OnMarch 5, 2021 , we monetized our approximately 202-acre raw land holdings inCoachella, California for$11.0 million (recognizing a gain on sale after costs to sell of$6.3 million over our$4.4 million net book value). As a 50% member ofShadow View Land andFarming LLC , the entity that owned the property, our Company received 50% of the sale, being$5.3 million . As raw land, this asset produced no operating income while continuing to generate carrying costs, such as taxes, insurance and maintenance. ?OnJune 30, 2021 , we monetized ourRoyal George Theatre property inChicago for$7.1 million . We realized a gain on sale after costs to sell of$5.0 million over our$1.8 million net book value.
?OnJune 9, 2021 , we monetized ourAuburn /Redyard Center (including the 114,000 square feet of undeveloped land) located inAuburn ,New South Wales for$69.6 million (AU$90.0 million). We recognized a gain on sale after costs to sell of$38.7 million (AU$50.1 million) over our$30.2 million (AU$39.1 million) net book value. As part of the transaction, we entered into a lease with the purchaser to continue to operate the cinema at that location. 39
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?OnMarch 4, 2021 , we monetized our two industrial properties adjacent to theAuckland Airport in Manukau/Wiri inNew Zealand , representing 70.4 acres, for$56.1 million (NZ$77.2 million ). We recognized a gain on sale after costs to sell of$41.0 million (NZ$56.3 million) over our$13.6 million (NZ$18.7 million) net book value. As raw land, this asset produced no operating income while continuing to generate carrying costs, such as taxes, insurance, and maintenance. ?OnAugust 30, 2021 , we sold our cinema building and land in Invercargill for$3.8 million (NZ$5.4 million) to the owner of the adjacent property, which is currently undergoing a major redevelopment. This property, not then classified as held for sale, was monetized in a transaction whereby the purchaser leased back the Reading Cinema to our company.
For a more detailed discussion regarding our strategic monetizations, please see Note 6 to the financial statements.
Value-creating Opportunities
The implementation of most of our Company's real estate development plans have been delayed due to COVID-19 and the need to conserve capital. However, we intend to continue to emphasize the prudent development of our real estate assets as we emerge from the Pandemic.
?44 Union Square Redevelopment (New York City ) - Historically known as Tammany Hall, this building with approximately 73,000 square feet of net rentable area overlooksManhattan's Union Square . During the COVID-19 pandemic,New York City shut down non-essential construction and businesses, including construction work at our site. OnAugust 31, 2020 , we received a temporary certificate of occupancy for the core and shell of the building, which has been continuously renewed pending construction of tenant improvements. Our leasing team continues to pursue potential tenants, although no assurances can be given that we will be able to lease the space on acceptable terms in the near term. This building, hailed as a dramatic pièce de résistance with its first in the city, over 800-piece glass dome, brings the future toNew York's fabled past and was awarded in 2020 the ENR New York's Best Projects awards for Renovation/Restoration and for Safety. InJuly 2021 ,44 Union Square /Tammany Hall was a jury and popular choice winner in the Architecture and Collaboration concept category of the Architizer A+ Awards, the world's largest awards program for architecture and building products. We believe44 Union Square is attractive to potential tenants interested in both (i) operating inNew York City and (ii) seeking to have greater control over the size and design of their spaces in a post-COVID-19 environment. It is one of a very limited number of "brandable" sites available for lease inNew York City and can be delivered immediately upon the execution of leases. ?Sepulveda Office Building (Culver City ,U.S. ) - OnMay 27, 2020 , we leased on a multi-year basis the entire second floor of our administrative operations building inCulver City, California (approximately 12,000 usable square feet) to WWP Beauty (wwpinc.com), a global company with over 35 years of experience providing the cosmetics and personal care industries with a range of packaging needs. On the date of the lease, possession of the space was turned over to WWP Beauty, which was responsible for building out its space. Straight line rent commenced inMay 2020 and cash rent payment began inOctober 2020 . ?Minetta Lane Theatre (New York City ,U.S. ) - Prior to COVID-19, our theatre was used by Audible, to present plays featuring a limited cast of one or two characters and special live performance engagements on the Audible streaming service. Due to COVID-19, no shows were presented betweenMarch 2020 andOctober 8, 2021 , the date on which public performances resumed. In late 2019, we completed an initial feasibility study for the potential redevelopment of this asset. We will refocus our efforts on this project at a later date asNew York City continues to show signs of recovery from the impacts of the COVID-19 pandemic. In the interim, we renewed our license arrangement with Audible which extends throughMarch 15, 2023 , with a one-year option to extend held by Audible. 40
-------------------------------------------------------------------------------- ?Cinemas 1,2,3 Redevelopment (New York City ) - Given the expiration of two of our UpperEast Side (New York City ) cinema leases in 2019, we have determined to continue to operate this location as a cinema for at least the near term. We intend to seek a rezoning of this property to allow us to continue our cinema use as a part of any such redevelopment. However, all other redevelopment activity related to this location has been suspended until we are able to develop a better understanding of the ongoing effects of COVID-19 on our assets and the market.New Zealand : ?Courtenay Central Redevelopment (Wellington ) - Located in the heart ofWellington -New Zealand's capital city - our Courtenay Central property covers, on a consolidated basis through various subsidiaries, 161,000 square feet of land situated proximate to (i) theTe Papa Tongarewa Museum (attracting over 1.5 million visitors annually, pre-COVID), and (ii) across the street from Takina, the site of the futureWellington Convention and Exhibition Centre (wcec.co.nz), the capital's first premium conference and exhibition space, which is due to be completed in 2023. Despite the COVID-19 pandemic, construction for this major public project has resumed and plans include the creation of a public concourse linking through toWakefield Street , which is across the street from our Courtenay Central project. As previously reported, damage from the 2016 Kaikoura earthquake necessitated demolition of our nine-story parking garage at the site, and unrelated seismic issues caused us to close major portions of the existing cinema and retail structure in early 2019. Prior to the COVID-19 pandemic, the real estate team had developed a comprehensive plan featuring a variety of uses to complement and build upon the "destination quality" of the Courtenay Central location. Notwithstanding the COVID-19 pandemic, our real estate team is continuing to work with our consultants, tenants, potential tenants, and city representatives to advance our redevelopment plans for this property. Given the uncertainty surrounding the COVID-19 Pandemic, we have no fixed time frame for the commencement of the redevelopment of this property.
Corporate Matters
Refer to Note 16 - Stock-Based Compensation and Stock Repurchases for details regarding our stock repurchase program and Board, Executive and Employee stock-based remuneration programs.
Due to the COVID-19 pandemic and its impact on our overall liquidity, our stock repurchase program has and will likely continue to take a lower capital allocation priority for the foreseeable future.
?
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Please refer to our 2020 Form 10-K for more details on our cinema and real estate segments.
RESULTS OF OPERATIONS
The table below summarizes the results of operations for each of our principal business segments along with the non-segment information for the quarter and nine months endedSeptember 30, 2021 , andSeptember 30, 2020 , respectively: Quarter Ended % Change Nine Months Ended % Change September 30, September 30, Fav/
2021 2020 ?(Unfav) 2021 2020 ?(Unfav)
SEGMENT RESULTS
Revenue
Cinema exhibition$ 28,751 7,339 >100 %$ 79,580 $ 54,866 45 % Real estate 3,177 3,023 5 % 9,948 9,928 - % Inter-segment elimination (125) (171) 27 % (386) (1,953) 80 % Total revenue 31,803 10,191 >100 % 89,142 62,841 42 %
Operating expense
Cinema exhibition (29,362) (15,988) (84) % (82,871) (73,722) (12) % Real estate (2,683) (1,909) (41) % (7,902) (6,258) (26) %
Inter-segment
elimination 125 171 (27) % 386 1,953 (80) % Total operating expense (31,920) (17,726) (80) % (90,387) (78,027) (16) % Depreciation and amortization Cinema exhibition (3,555) (3,845) 8 % (10,801) (11,388) 5 % Real estate (1,705) (1,552) (10) % (5,293) (4,127) (28) %
Total depreciation and
amortization (5,260) (5,397) 3 % (16,094) (15,515) (4) %
General and
administrative expense
Cinema exhibition (891) (916) 3 % (6,588) (3,074) (>100) % Real estate (274) (406) 33 % (660) (1,007) 34 % Total general and administrative expense (1,165) (1,322) 12 % (7,248) (4,081) (78) %
Segment operating income
Cinema exhibition (5,057) (13,410) 62 % (20,680) (33,318) 38 % Real estate (1,485) (844) (76) % (3,907) (1,464) (>100) %
Total segment operating
income (loss)$ (6,542) $ (14,254) 54 %$ (24,587) $ (34,782) 29 % NON-SEGMENT RESULTS Depreciation and amortization expense (300) (215) (40) % (917) (634) (45) %
General and
administrative expense (4,109) (2,906) (41) % (11,957) (11,194) (7) % Interest expense, net (3,068) (2,379) (29) % (10,437) (6,176) (69) %
Equity earnings of
unconsolidated joint
ventures (75) (97) 23 % 158 (292) >100 %
Gain (loss) on sale of
assets 2,559 (1) >100 % 92,345 (1) >100 % Other income (expense) 440 10 >100 % 2,236 (186) >100 % Income before income taxes (11,095) (19,842) 44 % 46,841 (53,265) >100 % Income tax benefit (expense) 895 490 83 % (12,380) 5,070 (>100) % Net income (loss) (10,200) (19,352) 47 % 34,461 (48,195) >100 %
Less: net income (loss)
attributable to
noncontrolling interests (105) (124) 15 % 2,889 (389) >100 % Net income (loss) attributable to Reading International, Inc.$ (10,095) $ (19,228)
47 %
$ (0.46) $ (0.88)
48 % $ 1.45
Consolidated and Non-Segment Results:
Third Quarter and Nine Months Net Results
Net loss attributable to RDI for the quarter endedSeptember 30, 2021 , decreased by$9.1 million , to a loss of$10.1 million , when compared to the same period in the prior year, and basic LPS decreased by$0.42 , to a loss of$0.46 for the quarter endedSeptember 30, 2021 , compared to the quarter endedSeptember 30, 2020 . These improved results are due to the continued roll outs of the COVID-19 vaccine in theU.S. , the reopening of a majority of our cinema portfolio, easing of occupancy restrictions since the initial COVID-19 shutdowns, and the successful release of certain tentpole movies from theHollywood studios during the third quarter of 2021 the gain on the sale of our Invercargill property in August of 2021. For the nine months endedSeptember 30, 2021 , net income attributable to RDI increased by$79.4 million , to$31.6 million , compared to the same period in the prior year. Basic EPS for the nine months endedSeptember 30, 2021 , increased by$3.65 , to$1.45 compared to the nine months endedSeptember 30, 2020 . These increases are largely due to the gain on our strategic monetization of certain assets, as discussed above. 42
-------------------------------------------------------------------------------- Revenue for the quarter endedSeptember 30, 2021 , increased by$21.6 million , to$31.8 million , when compared to the same period in the prior year. This increase was attributable to the majority of our cinemas operating during the third quarter of 2021 compared to the third quarter of 2020. These positive results were further impacted by the release of several tentpole movies from theHollywood studios in the third quarter of 2021, which collectively led to an increase in attendance compared to the third quarter of 2020. Revenue for the nine months endedSeptember 30, 2021 , increased by$26.3 million , to$89.1 million , when compared to the same period in the prior year. This increase was attributable to the majority of our cinemas operating during the first nine months of 2021, compared to the same period in 2020.
Non-Segment General & Administrative Expenses
Non-segment general and administrative expense for the quarter endedSeptember 30, 2021 , increased by 41%, or$1.2 million , to$4.1 million compared to the quarter endedSeptember 30, 2020 . This increase is primarily due to the non-recurring legal settlement of$0.8 million entered in favor of our Company in the James Jr. Cotter derivative litigation by theNevada Supreme Court during the third quarter of 2020. This increase is also attributable to wage subsidies received inAustralia and New Zealand in the third quarter of 2020 that did not occur in the same period for the current year. Non-segment general and administrative expense for the nine months endedSeptember 30, 2021 , increased 7%, or$0.8 million , to$12.0 million compared to the nine months endedSeptember 30, 2020 . This increase is primarily due to the non-recurring legal settlement of$0.8 million entered in favor of our Company in the James Jr. Cotter derivative litigation by theNevada Supreme Court during the third quarter of 2020. This increase is also attributable to wage subsidies received inAustralia and New Zealand in the third quarter of 2020 that did not occur in the same period for the current year.
Income Tax Expense
Income tax benefit for the quarter endedSeptember 30, 2021 , increased by$0.4 million compared to the equivalent prior-year period. The change between 2021 and 2020 is primarily related to a decrease in valuation allowance in 2021. Income tax expense for the nine months endedSeptember 30, 2021 , increased by$17.5 million compared to the equivalent prior-year period. The change between 2021 and 2020 is primarily related to the increase in pretax income in 2021, partially offset by a decrease in valuation allowance in 2021. ? 43
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Business Segment Results
Cinema Exhibition
The following table details our cinema exhibition segment operating results for the quarter and nine months endedSeptember 30, 2021 , andSeptember 30, 2020 , respectively: % Change Quarter Ended Nine Months Ended Fav/(Unfav) September 30, September 30, September 30, September 30, Quarter Nine Months (Dollars in thousands) 2021 % of Revenue 2020 % of Revenue 2021 % of Revenue 2020 % of Revenue ?Ended Ended REVENUE United States Admissions revenue $ 9,278 32% $ 329 4%$ 18,327 23%$ 14,244 26% >100 % 29 % Food & beverage revenue 6,011 21% 264 4% 11,883 15% 7,322 13% >100 % 62 % Advertising and other revenue 1,674 6% 214 3% 3,648 5% 3,016 6% >100 % 21 %$ 16,963 59% $ 807 11%$ 33,858 43%$ 24,582 45% >100 % 38 % Australia Admissions revenue $ 5,520 19% $ 2,877 39%$ 22,880 29%$ 15,625 28% 92 % 46 % Food & beverage revenue 3,178 11% 1,530 21% 12,063 15% 7,286 13% >100 % 66 % Advertising and other revenue 658 2% 447 6% 2,677 3% 2,031 4% 47 % 32 % $ 9,356 32% $ 4,854 66%$ 37,620 47%$ 24,942 45% 93 % 51 % New Zealand Admissions revenue $ 1,489 5% $ 1,053 14% $ 5,108 6% $ 3,455 6% 41 % 48 % Food & beverage revenue 793 3% 512 7% 2,539 3% 1,563 3% 55 % 62 % Advertising and other revenue 149 1% 113 2% 455 1% 324 1% 32 % 40 % $ 2,431 9% $ 1,678 23% $ 8,102 10% $ 5,342 10% 45 % 52 % Total revenue$ 28,750 100% $ 7,339 100%$ 79,580 100%$ 54,866 100% >100 % 45 % OPERATING EXPENSE United States Film rent and advertising cost$ (4,953) 17% $ (189) 3%$ (9,181) 12%$ (7,456) 14% (>100) % (23) % Food & beverage cost (1,433) 5% (173) 2% (2,844) 3% (2,180) 3% (>100) % (30) % Occupancy expense (4,225) 15% (6,834) 93% (16,375) 21% (20,211) 37% 38 % 19 % Other operating expense (7,278) 25% (3,068) 42% (15,915) 20% (15,197) 28% (>100) % (5) %$ (17,889) 62%$ (10,264) 140%$ (44,315) 56%$ (45,044) 82% (74) % 2 % Australia Film rent and advertising cost$ (2,267) 8%$ (1,121) 15%$ (9,448) 12%$ (6,728) 12% (>100) % (40) % Food & beverage cost (728) 3% (413) 6% (2,673) 3% (1,675) 3% (76) % (60) % Occupancy expense (2,665) 9% (932) 12% (7,504) 9% (6,619) 12% (>100) % (13) % Other operating expense (3,557) 12% (1,742) 24% (12,085) 15% (8,269) 15% (>100) % (46) %$ (9,217) 32%$ (4,208) 57%$ (31,710) 39%$ (23,291) 42% (>100) % (36) % New Zealand Film rent and advertising cost $ (646) 2% $ (427) 6%$ (2,187) 3%$ (1,528) 3% (51) % (43) % Food & beverage cost (162) 1% (108) 2% (511) 1% (328) 1% (50) % (56) % Occupancy expense (601) 2% (362) 5% (1,376) 2% (1,436) 2% (66) % 4 % Other operating expense (845) 3% (619) 8% (2,772) 3% (2,094) 4% (37) % (32) %$ (2,254) 8%$ (1,516) 21%$ (6,846) 9%$ (5,386) 10% (49) % (27) % Total operating expense$ (29,360) 102%$ (15,988) 218%$ (82,871) 104%$ (73,721) 134% (84) % (12) % DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE United States Depreciation and amortization$ (1,790) 6%$ (1,941) 26%$ (5,438) 7%$ (5,949) 11% 8 % 9 % General and administrative expense (558) 2% (661) 9% (5,687) 7% (2,228) 4% 16 % (>100) %$ (2,348) 8%$ (2,602) 35%$ (11,125) 14%$ (8,177) 15% 10 % (36) % Australia Depreciation and amortization$ (1,488) 5%$ (1,535) 21%$ (4,443) 6%$ (4,349) 8% 3 % (2) % General and administrative expense (333) 1% (254) 4% (901) 1% (854) 1% (31) % (6) %$ (1,821) 6%$ (1,789) 25%$ (5,344) 7%$ (5,203) 9% (2) % (3) % New Zealand Depreciation and amortization $ (277) 1% $ (369) 5% $ (919) 1%$ (1,090) 2% 25 % 16 % General and administrative expense - 0% (1) 0% - 0% 8 (0)% 100 % 100 % $ (277) 1% $ (370) 5% $ (919) 1%$ (1,082) 2% 25 % 15 % Total depreciation, amortization, general and administrative expense$ (4,446) 15%$ (4,761) 65%$ (17,388) 22%$ (14,462) 26% 7 % (20) %
OPERATING INCOME (LOSS) - CINEMA
United States$ (3,274) (11)%$ (12,059) (164)%$ (21,582) (27)%$ (28,640) (52)% 73 % 25 % Australia (1,682) (6)% (1,143) (16)% 566 1% (3,552) (6)% (47) % >100 % New Zealand (100) (0)% (208) (3)% 337 0% (1,126) (1)% 52 % >100 % Total Cinema operating income (loss)$ (5,056) (17)%$ (13,410) (183)%$ (20,679) (26)%$ (33,318) (60)% 62 % 38 %
Third Quarter and Nine Months Results
Cinema Segment Operating Income/(Loss)
Cinema segment operating loss for the quarter endedSeptember 30, 2021 , decreased by$8.4 million , to a loss of$5.1 million when compared to the same period in 2020. This decrease was primarily driven by increased admissions revenue from major films, such as Shang-Chi and the Legend of the Ten Rings, Black Widow, and Jungle Cruise during the quarter endedSeptember 30, 2021 . Furthermore, the mass vaccination campaigns in theU.S. eased some of the occupancy restrictions that were in place during the third quarter of 2020. 44 -------------------------------------------------------------------------------- Cinema segment operating loss for the nine months endedSeptember 30, 2021 , decreased by$12.6 million , to a loss of$20.7 million when compared to the same period in 2020. This decrease is primarily driven by the reopening and operating of the majority of our cinemas worldwide during the first nine months of 2021 as a result of vaccination roll outs in theU.S. along with the release of major blockbuster films. Revenue Cinema revenue increased by$21.4 million , to$28.8 million for the quarter endedSeptember 30, 2021 , compared to the same period in 2020. This increase was due to increased admissions revenue from major tentpole films during the current year period as well as (i) the vaccination roll outs in theU.S. , and (ii) the easing of local government restrictions in 2021. For the nine months endedSeptember 30, 2021 , cinema revenue increased by$24.7 million , to$79.6 million compared to the same period in 2020. This increase was due to (i) the majority of our global cinemas reopening and operating in 2021 compared to first and second quarter of 2020, when most of our global cinemas were closed due to the COVID-19 pandemic, (ii) the releases of several tentpole films by major studios, and (iii) the easing of local government restrictions during the first nine months of 2021.
Operating expense
Operating expense for the quarter endedSeptember 30, 2021 , increased by$13.4 million , to$29.4 million , due to increased film rent and other operating expenses primarily in theU.S. andAustralia , as a result of strong tentpoles. This operating expense increase is also attributable to large savings in external rent abatements received in the third quarter of 2020 as a result of the pandemic, offset by a decrease in occupancy expenses in theU.S. related to abatements received in the third quarter of 2021. Operating expense for the nine months endedSeptember 30, 2021 , increased by$9.2 million , to$82.9 million due to increased film rent and other operating expenses, again, due to the majority of our cinemas now having been reopened and operating.
Depreciation, amortization, general and administrative expense
Depreciation, amortization, general and administrative expense for the quarter endedSeptember 30, 2021 , decreased slightly by$0.3 million , to$4.4 million , compared to the same period in 2020. Depreciation, amortization, general and administrative expense for the nine months endedSeptember 30, 2021 , increased by$2.9 million , to$17.4 million , compared to the same period in 2020. This increase is attributable to the reserve established to cover the costs of the settlement of certainCalifornia employment wage and hour claims. See Note 14. ? 45
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Real Estate
The following table details our real estate segment operating results for the quarter and nine months endedSeptember 30, 2021 andSeptember 30, 2020 , respectively: % Change Quarter Ended Nine Months Ended Fav/(Unfav) Nine September 30, % of September 30, % of September 30, % of September 30, % of Months (Dollars in thousands) 2021 ?Revenue 2020 ?Revenue 2021 ?Revenue 2020 ?Revenue Quarter Ended Ended REVENUE Live theatre rental and United States ancillary income $ 379 12% $ 106 4% $ 782 7% $ 888 9% >100 % (12) % Property rental income 177 6% 125 4% 447 5% 277 3% 42 % 61 % 556 18% 231 8% 1,229 12% 1,165 12% >100 % 5 % Australia Property rental income 2,391 75% 2,562 85% 8,000 81% 8,050 81% (7) % (1) % New Zealand Property rental income 230 7% 230 7% 718 7% 713 7% - % 1 % Total revenue $ 3,177 100% $ 3,023 100% $ 9,947 100% $ 9,928 100% 5 % - % OPERATING EXPENSE United States Live theatre cost $ (197) 6% $ (140) 5% $ (374) 4% $ (612) 6% (41) % 39 % Property cost (361) 11% (127) 3% (1,007) 10% (944) 10% (>100) % (7) % Occupancy expense (506) 16% (240) 8% (1,376) 13% (561) 5% (>100) % (>100) % (1,064) 33% (507) 16% (2,757) 27% (2,117) 21% (>100) % (30) % Australia Property cost (594) 19% (653) 22% (2,041) 21% (1,733) 17% 9 % (18) % Occupancy expense (527) 16% (400) 13% (1,703) 17% (1,353) 14% (32) % (26) % (1,121) 35% (1,053) 35% (3,744) 38% (3,086) 31% (6) % (21) % New Zealand Property cost (387) 12% (239) 8% (1,068) 11% (738) 7% (62) % (45) % Occupancy expense (110) 4% (111) 4% (333) 3% (317) 4% 1 % (5) % (497) 16% (350) 12% (1,401) 14% (1,055) 11% (42) % (33) % Total operating expense $
(2,682) 84%
(6,258) 63% (40) % (26) %
DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE
EXPENSE
United States Depreciation and amortization $ (739) 23% $ (385) 13% $ (2,237) 22% $ (791) 8% (92) % (>100) %
General and administrative
expense (192) 6% (211) 7% (495) 5% (601) 6% 9 % 18 %
(931) 29% (596) 20% (2,732) 27% (1,392) 14% (56) % (96) %
Australia Depreciation and amortization $ (724) 23% $ (925) 31% $ (2,310) 23% $ (2,633) 27% 22 % 12 %
General and administrative
expense (82) 2% (187) 6% (164) 2% (429) 4% 56 % 62 %
(806) 25% (1,112) 37% (2,474) 25% (3,062) 31% 28 % 19 %
New Zealand Depreciation and amortization (242) 8% (242) 8% (747) 8% (703) 7% - % (6) %
General and administrative
expense - 0% (7) 0% - 0% 23 (0)% 100 % 100 %
(242) 8% (249) 8% (747) 8% (680) 7% 3 % (10) %Total depreciation, amortization, general and
administrative expense $
(1,979) 62%
(5,134) 52% (1) % (16) %
OPERATING INCOME (LOSS) - REAL ESTATE
United States$ (1,439) (45)% $ (872) (29)%$ (4,260) (43)%$ (2,344) (24)% (65) % (82) % Australia 464 15% 397 13% 1,782 18% 1,902 19% 17 % (6) % New Zealand (509) (16)% (369) (12)% (1,430) (14)% (1,022) (10)% (38) % (40) % Total real estate operating income (loss) $
(1,484) (46)% $ (844) (28)%
(1,464) (15)% (76) % (>100) %
Third Quarter and Nine Months Results
Real Estate Segment Income/(Loss)
Real estate segment operating loss for the quarter endedSeptember 30, 2021 , increased by$0.6 million , to a loss of$1.5 million , compared to the same period in 2020. This increase is attributable to (i) increased property costs and occupancy expenses related to our44 Union Square property, as well as the commencement of depreciation for this property, and (ii) a decrease in property rental income inAustralia as a result of the sale of ourAuburn /Redyard shopping center during the second quarter of 2021. Real estate segment operating loss for the nine months endedSeptember 30, 2021 , increased by$2.4 million , to a loss of$3.9 million , compared to the same period in 2020. This increase is attributable to (i) the increased operating expenses and the commencement of depreciation for our44 Union Square property, and (ii) the decision to abate internal rent revenue from some of our fee-interest cinemas. These results were partially offset by rental income received from ourCulver City tenant which did not exist until straight line rent commenced in 2020. Revenue
Real estate revenue for the quarter ended
Real estate revenue for the nine months ended
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Operating Expense
Operating expense for the quarter endedSeptember 30, 2021 , increased by$0.8 million , to$2.7 million , due to the increased operating costs related to our44 Union Square property. Operating expense for the nine months endedSeptember 30, 2021 , increased by$1.6 million , to$7.9 million , due to the increased operating costs related to our44 Union Square property.
Depreciation, Amortization, General and Administrative Expense
Depreciation, amortization, general and administrative expense for the quarter endedSeptember 30, 2021 , increased slightly by$0.02 million to$2.0 million , which is attributable to the commencement of depreciation of our44 Union Square property, offset by savings in depreciation related to the sale of ourAuburn /Redyard shopping center, Royal George, and Invercargill properties. Depreciation, amortization, general and administrative expense for the nine months endedSeptember 30, 2021 , increased by$0.8 million , to$6.0 million , which is attributable to the commencement of depreciation of our44 Union Square property, offset by savings in depreciation related to the sale of ourAuburn /Redyard shopping center, Royal George, and Invercargill properties. ? 47
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LIQUIDITY AND CAPITAL RESOURCES
Our COVID-19 Financing Strategy
Prior to the interruption to our revenues caused by the COVID-19 pandemic, we have used cash generated from operations and other excess cash to the extent not needed to fund capital investments contemplated by our business plan, to pay down our loans and credit facilities. This provided us with availability under our loan facilities for future use and thereby, reduced interest charges. On a periodic basis, we have reviewed the maturities of our borrowing arrangements and negotiated renewals and extensions where necessary. In 2020, we completed amending and extending various financing arrangements less than two weeks prior to the COVID-19 government mandated shutdowns, which we believe has helped provide the necessary liquidity to see us through the COVID-19 crisis. In response to the COVID-19 pandemic, the temporary closure of our cinemas, and the trading restrictions placed on many of our real estate tenants, we had fully drawn-down on all our available operating lines-of-credit by the end of the first quarter of 2020, to provide additional liquidity. In 2021, the monetization of certain real estate assets funded our ability to pay down debt thereby increasing our future availability and, in some places, permanently reducing our loan funding amounts: ?For the first nine months endedSeptember 30, 2021 , we paid down$8.4 million on theBank of America revolving credit facility balance to$42.8 million bringing the total availability to$12.2 million , which can be redrawn under this facility. ?OnMarch 26, 2021 , we used a portion of the proceeds from the monetization of our Manukau property to retire the$40.6 million construction loan which, at the time, secured our44 Union Square property. OnMay 7, 2021 , we closed on a new three-year$55.0 million loan facility for44 Union Square withEmerald Creek Capital ;
?On
?On
?On
Our bank loans withBank of America , NAB, and Westpac require that our Company comply with certain covenants. Furthermore, our Company's use of these loan funds is limited due to limitations on the expatriation of funds fromAustralia and New Zealand tothe United States . We believe that our lenders understand that the current situation, relating to COVID-19, is not of our making, that we are doing everything that can reasonably be done, and that, generally speaking, our relationship with our lenders is good.
As of the date of this report, we negotiated the following with our lenders:
?Westpac waived the requirement to test certain covenants as of
?OnNovember 2, 2021 , NAB modified our Fixed Charge Cover Ratio and Leverage Ratio covenants, reducing the measurement requirements and in some instances removing the requirement to test. ?OnNovember 8, 2021 , and effective in the fourth quarter of 2021,Bank of America replaced all of our covenants with a single liquidity test and converted the line of credit into a term loan with scheduled repayments, maturing onMarch 6, 2023 . We also repaid$2.8 million of the facility on this date.
?On
Our Company remains focused on the various economic factors affecting us as the markets in which we operate emerge from the worst effects of the COVID-19 pandemic, including financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If our Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed our Company's borrowing capacity under its available facilities, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling additional assets, or restructuring debt.
For more information about our borrowings, please refer to Note 11 - Borrowings in the Notes to Consolidated Financial Statements.
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The changes in cash and cash equivalents for the nine months ended
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 % Change
Net cash provided by (used in) operating
activities$ (17,760) $ (28,008)
37 %
Net cash provided by (used in) investing
activities 127,506 (16,550)
>100 %
Net cash provided by (used in) financing
activities (40,954) 57,339
(>100) %
Effect of exchange rate changes on cash and
cash equivalents (4,731) 2,859
(>100) %
Increase (decrease) in cash and cash
equivalents$ 64,061 $ 15,640 >100 % Operating activities Cash used in operating activities for the nine months endedSeptember 30, 2021 , decreased by$10.2 million , to$17.8 million driven by a$20.9 million increase in net changes in operating assets and liabilities primarily resulting from taxes payable, offset by a decrease in cash inflows from operating activities of$10.6 million . Investing activities Cash provided by investing activities during the nine months endedSeptember 30, 2021 , increased by$144.1 million , to$127.5 million when compared to the same period in 2020. This increase is primarily attributable to$145.2 million from asset monetizations. Financing activities The$41.0 million net cash used in financing activities during the nine months endedSeptember 30, 2021 , is primarily due to developments in our debt portfolio as discussed above. The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital, and other relevant information addressing our liquidity for the third quarter endedSeptember 30, 2021 , and preceding four years: As of and for the 9-Months Ended Year Ended December 31 September ($ in thousands) 30, 2021 2020(1) 2019(1) 2018(1)(3) 2017(1)(2)(3)
Total Resources (cash and borrowings) Cash and cash equivalents (unrestricted)$ 90,887 $ 26,826 $ 12,135 $ 13,127 $ 13,668 Unused borrowing facility 24,200 15,490 73,920 85,886 137,231 Restricted for capital projects 12,000 9,377 13,952 30,318 62,280 Unrestricted capacity 12,200 6,113 59,968 55,568 74,951 Total resources at period end 115,087 42,316 86,055 99,013 150,899 Total unrestricted resources at period end 103,087 32,939 72,103 68,695 88,619 Debt-to-Equity Ratio Total contractual facility$ 269,953 $ 300,449 $ 283,138 $ 252,929 $ 271,732 Total debt (gross of deferred financing costs) 245,753 284,959 209,218 167,043 134,501 Current 3,288 42,299 37,380 30,393 8,109 Non-current 242,465 242,660 171,838 136,650 126,392 Finance lease liabilities 81 118 209 - - Total book equity 103,573 81,173 139,616 179,979 181,382 Debt-to-equity ratio 2.37 3.51 1.50 0.93 0.74 Changes in Working Capital Working capital (deficit)(4)$ 4,815 $ (64,140) $ (84,138) $ (56,047) $ (47,294) Current ratio 1.05 0.47 0.24 0.35 0.41 Capital Expenditures (including acquisitions)$ 11,511 $ 16,759 $
47,722
(1)This includes the construction facilities specifically negotiated for:
(2)Certain 2017 balances included the restatement impact as a result of a prior period financial statement correction of immaterial errors (see Note 2 - Summary of Significant Accounting Policies - Prior Period Financial Statement Correction of Immaterial Errors of the 2020 Form 10-K). (3)See Note 2 - Summary of Significant Accounting Policies - Prior Period Financial Statements Correction of Immaterial Errors of the 2020 Form 10-K for the prior period adjustments for accounting for accrued sales tax deemed not material. (4)Our working capital is reported as a deficit, as we receive revenue from our cinema business ahead of the time that we have to pay our associated liabilities. We use the money we receive to pay down our borrowings in the first instance. AtSeptember 30, 2021 , our total outstanding borrowings were$245.8 million compared to$285.0 million atDecember 31, 2020 . As ofSeptember 30, 2021 , we had$90.9 million in cash and cash equivalents compared to$26.8 million atDecember 31, 2020 . AtSeptember 30, 2021 , our consolidated cash and cash equivalents totaled$90.9 million , which included approximately$8.4 million in ourU.S. operations,$59.8 million in our Australian operations, and$22.7 million in ourNew Zealand operations. 49 -------------------------------------------------------------------------------- We manage our cash, investments, and capital structure to meet the short-term and long-term obligations of our business, while maintaining financial flexibility and liquidity. We forecast, analyze, and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy. In the past, we used cash generated from operations and other excess cash to the extent not needed for any capital expenditures, to pay down our loans and credit facilities providing us some flexibility on our available loan facilities for future use and thereby, reducing interest charges. As a result of the COVID-19 pandemic, we chose to fully draw down on most of our lines of credit in order to provide liquidity for our Company during a time of minimal revenues.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
The following table provides information with respect to the maturities and
scheduled principal repayments of our recorded contractual obligations and
certain of our commitments and contingencies, either recorded or off-balance
sheet, as of
(Dollars in thousands) 2021 2022 2023 2024 2025 Thereafter Total Debt(1)$ 577 $ 25,032 $ 138,634 $ 43,296 $ 287 $ 7,798 $ 215,624 Operating leases, including imputed interest 8,015 34,005 33,830 32,054 29,891 181,475 319,270 Finance leases, including imputed interest 13 43 28 - - - 84 Subordinated debt(1) 172 711 747 586 - 27,913 30,129 Pension liability 171 684 684 684 684 1,495 4,402 Estimated interest on debt (2) 2,591 9,739 7,743 2,582 1,476 2,110 26,240 Village East purchase option(3) - - 5,900 -
- - 5,900 Total$ 11,539 $ 70,214 $ 187,566 $ 79,201 $ 32,338 $ 220,791 $ 601,649
(1)Information is presented gross of deferred financing costs.
(2)Estimated interest on debt is based on the anticipated loan balances for future periods and current applicable interest rates.
(3)Represents the lease liability of the option associated with the ground lease purchase of the Village East Cinema.
Litigation
We are currently involved in certain legal proceedings and, as required, have accrued estimates of probable and estimable losses for the resolution of these claims. Please refer to Item 3 - Legal Proceedings in our 2020 Form 10-K for more information. There have been no material changes to our litigation since our 2020 Form 10-K, except as set forth in Note 14 - Commitments and Contingencies in the accompanying consolidated financial statements included in this Form 10-Q. This note sets out our litigation accounting policies.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in the financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources. CRITICAL ACCOUNTING POLICIES We believe that the application of the following accounting policies requires significant judgments and estimates in the preparation of our Consolidated Financial Statements and hence, are critical to our business operations and the understanding of our financial results: (i) Impairment of Long-lived Assets (other thanGoodwill and Intangible Assets with indefinite lives) - we evaluate our long-lived assets and finite-lived intangible assets using historical and projected data of cash flows as our primary indicator of potential impairment and we take into consideration the seasonality of our business. If the sum of the estimated, undiscounted future cash flows is less than the carrying amount of the asset, then an impairment is recognized for the amount by which the carrying value of the asset exceeds its estimated fair value based on an appraisal or a discounted cash flow calculation. For certain non-income producing properties or for those assets with no consistent historical or projected cash flows, we obtain appraisals or other evidence to evaluate whether there are impairment indicators for these assets.
No impairment losses were recorded for long-lived and finite-lived intangible
assets for the third quarter and nine months ended
(ii) Impairment ofGoodwill and Intangible Assets with indefinite lives - goodwill and intangible assets with indefinite useful lives are not amortized, but instead, tested for impairment at least annually on a reporting unit basis. The impairment evaluation is based on the present value of estimated future cash flows of each reporting unit plus the expected terminal value. There are significant assumptions and estimates used in determining the future cash flows and terminal value. The 50
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most significant assumptions include our cost of debt and cost of equity assumptions that comprise the weighted average cost of capital for each reporting unit. Accordingly, actual results could vary materially from such estimates.
No impairment losses were recorded for goodwill and indefinite-lived intangible
assets for the third quarter and nine months ended
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the safe harbor provisions of theU.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "may," "will," "expect," "believe," "intend," "future," and "anticipate" and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding the closures and reopening of our cinemas and theatres, including our expectations regarding renovations and addition of cinemas; statements we make regarding the expected timing of landlord's delivery of our new cinemas in Traralgon,Australia andSouth City Square ,Australia ; our expected operating results, including the long-term impact of the COVID-19 pandemic and our ultimate return to pre-pandemic type results; our expectations regarding the recovery and future of the cinema exhibition industry, including the strength of movies anticipated for release in the future; our expectations regarding people returning to our theatres and continuing to use discretionary funds on entertainment outside of the home; our expectations regarding the impact of streaming and mobile video services on the cinema exhibition industry; our belief regarding the attractiveness of44 Union Square to potential tenants and ability to lease space on acceptable terms; our expectations regarding the timing of the completions our renovation projects, our expectations regarding credit facility covenant compliance and our ability to continue to obtain necessary covenant waivers; and our expectations of our liquidity and capital requirements and the allocation of funds. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
?with respect to our cinema and live theatre operations:
?the adverse impact of the COVID-19 pandemic which resulted in the temporary shutdown of our global cinemas inMarch 2020 , and the adverse effects on our anticipated cinema operations should there be further closings or restrictions mandated should the COVID-19 pandemic conditions become more severe, including with our live theatres inNew York City ; ?the adverse effects of the COVID-19 pandemic and its variants on our Company's results from operations, liquidity, cash flows, financial condition, and access to credit markets;
?the adverse impact of the COVID-19 pandemic and its variants on short-term and/or long-term entertainment, leisure and discretionary spending habits and practices of our patrons;
?the decrease in attendance at our cinemas and theatres after they have reopened due to (i) continued health and safety concerns, (ii) a change in consumer behavior in favor of alternative forms of entertainment, or (iii) additional regulatory requirements limiting our seating capacity;
?reduction in operating margins (or negative operating margins) due to the implementation of social distancing and other health and safety protocols;
?potentially uninsurable liability exposure to customers and staff should they become (or allege that they have become) infected with COVID-19 while at one of our facilities;
?unwillingness of employees to report to work due to the adverse effects of the COVID-19 pandemic or to otherwise conduct work under any revised work environment protocols;
?the adverse impact that the COVID-19 pandemic may continue to have on the national and global macroeconomic environment;
?competition from cinema operators who have successfully used debtor laws to reduce their debt and/or rent exposure;
?the uncertainty as to the scope and extent of government responses to the COVID-19 pandemic;
?the disruptions or reductions in the utilization of entertainment, shopping, and hospitality venues, as well as in our operations, due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as COVID-19, or to changing consumer tastes and habits;
?the number and attractiveness to moviegoers of the films released in future periods, and potential changes in release dates for motion pictures;
?the lack of availability of films in the short- or long-term as a result of (i) major film distributors releasing scheduled films on alternative channels or (ii) disruptions of film production;
?the amount of money spent by film distributors to promote their motion pictures;
?the licensing fees and terms required by film distributors from motion picture exhibitors in order to exhibit their films;
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?the comparative attractiveness of motion pictures as a source of entertainment and willingness and/or ability of consumers (i) to spend their dollars on entertainment and (ii) to spend their entertainment dollars on movies in an outside-the-home environment;
?the extent to which we encounter competition from other cinema exhibitors, from other sources of outside-the-home entertainment, and from inside-the-home entertainment options, such as "home cinemas" and competitive film product distribution technology, such as, streaming, cable, satellite broadcast, video on demand platforms, and Blu-ray/DVD rentals and sales;
?our ability to continue to obtain, to the extent needed, waivers or other financial accommodations from our lenders and landlords;
?the impact of major movies being released directly to one of the multitudes of streaming services available;
?the impact of certain competitors' subscription or advance pay programs;
?the failure of our new initiatives to gain significant customer acceptance and use or to generate meaningful profits;
?the cost and impact of improvements to our cinemas, such as improved seating, enhanced F&B offerings, and other improvements;
?the ability to negotiate favorable rent abatement, deferral and repayment terms with our landlords (which may include lenders who have foreclosed on the collateral held by our prior landlords);
?disruptions during cinema improvements;
?in the
?the risk of damage and/or disruption of cinema businesses from earthquakes as certain of our operations are in geologically active areas;
?the impact of protests, demonstrations, and civil unrest on, among other things, government policy, consumer willingness to go to the movies, and the spread of COVID-19;
?additional delays by our landlords in theState of Victoria in the hand-over of cinema space to us which will result in further delays of our planned opening dates; and
?labor shortages and increased labor costs related to such shortages and to increasingly costly labor laws and regulations applicable to part time non-exempt workers.
?with respect to our real estate development and operation activities:
?the impact of the COVID-19 pandemic and its variants may continue to affect
many of our tenants at our real estate operations in
?the impact of the COVID-19 pandemic and its variants on our construction projects and on our ability to open construction sites and to secure needed labor and materials;
?the impact of the COVID-19 pandemic and its variants on real estate valuations
in major urban centers, such as
?uncertainty as to governmental responses to COVID-19;
?the rental rates and capitalization rates applicable to the markets in which we operate and the quality of properties that we own;
?the ability to negotiate and execute lease agreements with material tenants;
?the extent to which we can obtain on a timely basis the various land use approvals and entitlements needed to develop our properties;
?the risks and uncertainties associated with real estate development;
?the availability and cost of labor and materials;
?the ability to obtain all permits to construct improvements;
?the ability to finance improvements;
?the disruptions to our business from construction and/or renovations;
?the possibility of construction delays, work stoppage, and material shortage;
?competition for development sites and tenants;
?environmental remediation issues;
?the extent to which our cinemas can continue to serve as an anchor tenant that will, in turn, be influenced by the same factors as will influence generally the results of our cinema operations;
?the increased depreciation and amortization expense as construction projects transition to leased real property;
?the ability to negotiate and execute joint venture opportunities and relationships;
?the risk of damage and/or disruption of real estate businesses from earthquakes as certain of our operations are in geologically active areas;
?the disruptions or reductions in the utilization of entertainment, shopping and hospitality venues, as well as in our operations, due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as COVID-19, or to changing consumer tastes and habits; and
?the impact of protests, demonstrations, and civil unrest on government policy, consumer willingness to visit shopping centers, and the spread of COVID-19, among other things.
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?with respect to our operations generally as an international company involved
in both the development and operation of cinemas and the development and
operation of real estate and previously engaged for many years in the railroad
business in the United States :
?our ability to renew, extend, renegotiate or replace our loans that mature in 2023 and beyond;
?our ability to grow our Company and provide value to our stockholders;
?our ongoing access to borrowed funds and capital and the interest that must be paid on that debt and the returns that must be paid on such capital, and our ability to borrow funds to help cover the cessation of cash flows we are experiencing during the COVID-19 pandemic;
?our ability to reallocate funds among jurisdictions to meet short-term liquidity needs;
?Management and Board distraction, expenses and other effects of the litigation efforts that were mounted byJames J. Cotter , Jr. against our Company, which may continue after his death, including efforts by the guardian ad litem in the trust litigation to cause a sale of voting control of our Company;
?the relative values of the currency used in the countries in which we operate;
?the impact that any discontinuance, modification or other reform of London Inter-Bank Offered Rate (LIBOR), or the establishment of alternative reference rates, may have on our LIBOR-based debt instruments;
?changes in government regulation, including by way of example, the costs resulting from the requirements of Sarbanes-Oxley;
?our labor relations and costs of labor (including future government requirements with respect to minimum wages, shift scheduling, the use of consultants, pension liabilities, disability insurance and health coverage, and vacations and leave);
?our exposure from time to time to legal claims and to uninsurable risks, such as those related to our historic railroad operations, including potential environmental claims and health-related claims relating to alleged exposure to asbestos or other substances now or in the future recognized as being possible causes of cancer or other health related problems, and class actions and private attorney general wage and hour and/or safe workplace-based claims;
?our exposure to cybersecurity risks, including misappropriation of customer information or other breaches of information security;
?the impact of major outbreaks of contagious diseases, such as COVID-19;
?the availability of employees and/or their ability or willingness to conduct work under any revised work environment protocols;
?the increased risks related to employee matters, including increased employment litigation and claims relating to terminations or furloughs caused by cinema and ETC closures; ?our ability to generate significant cash flow from operations if our cinemas and/or ETCs continue to experience demand at levels significantly lower than historical levels, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, if applicable, in our debt agreements;
?our ability to comply with credit facility covenants and our ability to obtain necessary covenant waivers and necessary credit facility amendments;
?changes in future effective tax rates and the results of currently ongoing and future potential audits by taxing authorities having jurisdiction over our various companies;
?potential inflationary pressures; and
?changes in applicable accounting policies and practices.
The above list is not necessarily exhaustive, as business is by definition unpredictable and risky, and subject to influence by numerous factors outside of our control, such as changes in government regulation or policy, competition, interest rates, supply, technological innovation, changes in consumer taste and fancy, weather, earthquakes, pandemics, such as COVID-19, and the extent to which consumers in our markets have the economic wherewithal to spend money on beyond-the-home entertainment. Refer to Part I, Item 1A - Risk Factors and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as well as the risk factors set forth in any other filings made under the Securities Act of 1934, as amended, including any of our Quarterly Reports on Form 10-Q, for more information. Forward-looking statements made by us in this quarterly report are based only on information currently available to us and are current only as of the date of this report. We undertake no obligation to publicly update or to revise any of our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. Accordingly, you should always note the date to which our forward-looking statements speak. 53
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