READING INTERNATIONAL, INC. 
Impact of the COVID-19 Pandemic
Like many other companies operating in the outside-the-home segment of the
entertainment industry, our results of operations for the first quarter of 2021
and 2020 were adversely impacted in a material way by the COVID-19 pandemic. Due
to COVID-19, our global cinemas were (i) ordered to close by government mandate
and (ii) once permitted to operate, suffered from reduced seating capacities and
a lack of quality movies as the major studios and smaller film companies either
postponed theatrical release of their movies or moved their movies to the home
video market, streaming, or premium video on demand ("PVOD") platforms. However,
with respect to our Company, the adverse impacts of COVID-19 were somewhat
buffered and mitigated by our "two business/three country" business strategy by
having cinemas and real estate in the U.S. , Australia and New Zealand . Cinemas
are reopening and as of the date of this Report, 56 of our 61 cinemas are now
open for business. Of the remaining five cinemas, two have been closed since
prior to the onset of the pandemic, one (in Kahala) for a major renovation and
the other (in Wellington ) to address seismic issues. Our Consolidated Theatre in
Kapolei on Oahu is working in cooperation with Kaiser Permanente to serve as a
mass vaccination site for Hawaii .
We have been able to maintain our core assets and keep our key personnel in
place as we reopen our cinemas and for when we reopen our live theatres to the
public, which is currently estimated to be in the Fall of 2021. Generally
speaking, our lenders and landlords continue to work with us, and we have not
lost any of our cinemas or other assets to default. Our relationships with our
film suppliers continue to be strong.
We have now monetized most of our raw land holdings. In the first quarter of
2021, we sold our land in Manukau, New Zealand for $56.1 million , a $41.0
million gain on sale after costs to sell over its book value of $13.5 million .
We also monetized our interest in our land in Coachella, California for $11.0
million , which amounted to a $6.3 million gain on sale after costs to sell over
its book value of $4.4 million and, as a 50% member of Shadow View Land and
Farming, LLC , the entity that held the property. Our Company received 50% of the
sale proceeds. We are also pursuing the monetization of certain other assets.
Our properties currently listed for sale are our Auburn Redyard property in
Sydney, Australia (which includes approximately 114,000 square feet of raw land)
and our Royal George Theatre in Chicago, Illinois . We are in exclusive
negotiations with a qualified buyer to sell the Auburn Redyard property, and on
May 14, 2021 , we entered into a definitive purchase and sale agreement with
respect to our Royal George Theatre property. While no assurances can be given,
we anticipate that both transactions will close during the second quarter of
2021. These sale proceeds will provide our Company with a cash safety net. Our
business plan is to ultimately redeploy this cash into our Company's asset base,
to repay debt as deemed necessary, and to continue to operate our cinema
business as a stand along business segment.
Subject to capital availability and assuming a return to normalcy, we will once
again put emphasis on developing and enhancing our real estate holdings, such as
our Courtenay Central, Cannon Park , and Newmarket ETCs, our Cinemas 1,2,3, and
our Philadelphia Viaduct properties.
Australia and New Zealand were comparable COVID-19 success stories and weathered
the pandemic better than the U.S. To date, all of our cinemas in Australia and
New Zealand (with the exception of Courtenay Central which, as discussed above,
remains temporarily closed due to seismic concerns) have reopened. During the
first quarter of 2021, the U.S. experienced a shift and has now become the
leader in mass vaccination campaigns and roll outs. As a result, we were able to
reopen the majority of our cinemas in the U.S. Consequently, movie studios have
begun releasing blockbuster films, like "Godzilla vs. Kong," which became the
highest-grossing Hollywood movie of the pandemic. The film's performance has
been a beacon of hope for the film and exhibition business and has emphasized
the pent-up demand among moviegoers to return to the theater.
In Australia and New Zealand , the governments' approach to assistance to
business was focused on the preservation of jobs and did not discriminate
against publicly held cinema companies, unlike the situation in the U.S.
Although we provided occupancy assistance to many of our third-party tenants in
Australia and New Zealand , the results of our real estate operations remained
relatively stable.
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 temporarily closed by government mandate, ultimately causing a halt to our cinema income. While our cinema operations inAustralia and New Zealand were less impacted by closures, with the first of ourNew Zealand cinemas reopening onMay 27, 2020 , approximately 65 days after the initial closure, and the first of ourAustralia cinemas reopening onJune 10 , approximately 80 days after the initial closure, some of these cinemas were later closed and reopened numerous times throughout the year as new outbreaks or stay-at-home orders were put in place. Due to government mandates, our Company was not able to reopen any of itsU.S. cinema locations untilAugust 21, 2020 , approximately 158 days from the initial COVID-19 pandemic closure. However, even in those jurisdictions in which we were permitted to operate, we were (i) subject to density restrictions (which reduced the number of patrons allowed into our cinema 33
-------------------------------------------------------------------------------- auditoriums) and (ii) negatively impacted by decisions of the majorHollywood studios to either postpone the release of their movies or, as opposed to offering an exclusive theatrical window, move their movies directly or simultaneously to home video or streaming platforms. Similarly, some of ourU.S. cinema locations then proceeded to be closed and reopened numerous times throughout the year. We were also adversely impacted by the increased costs associated with the enhanced cleaning protocols adopted to combat the COVID-19 virus. As of the date of this Report, 91% of our global cinema circuit had reopened: 83% of our cinemas inthe United States , 100% of our cinemas inAustralia and 100% of our cinemas inNew Zealand (apart from our Reading Cinemas at Courtenay Central, which remains temporarily closed due to seismic concerns). Since reopening our cinemas, we are encouraged by our growing cinema admissions, and we are pleased with the Food & Beverage ("F&B") per caps currently being achieved. Also, at the time the COVID-19 pandemic hit, we were already taking steps in our circuit to manage competition from streaming by improving the quality of our cinema offering (luxury recliner seating, presentation screens, and premium sound) and improving the quality and range of our F&B programs. With the development of 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, and we believe that we will ultimately return to results that resemble those of the pre-pandemic era.
COVID-19 Impact on our Real Estate Business
The majority of our tenants in our Australian, and all of our tenants in ourNew Zealand , real estate businesses are currently open for trading. We have, to varying degrees, and as required by regulation, supported certain tenants with rent abatements and deferrals, and may continue to do so until we believe that such tenants are in a position to fully perform their obligations despite COVID-19 impacts. In theU.S. , currently the majority of our real estate income is generated by rental revenue from our live theatres, which are licensed to third-party producers. While these venues have been closed to public performances, we negotiated payment arrangements with certain producers and generated limited income from these assets. During the COVID-19 pandemic, we substantially completed construction of our44 Union Square redevelopment project inManhattan and obtained and have subsequently maintained a core and shell temporary certificate of occupancy. The property is now ready for tenant occupancy. However, COVID-19 has severely constrained leasing activity inManhattan . Unfortunately, this disruption to the leasing market impacted our ability to renew our44 Union Square construction loan or to obtain a new loan. As a result, we elected to refinance on a short-term bridge basis using a portion of the proceeds generated by the monetization of our raw land at Manukau,New Zealand . OnMay 7, 2021 , we closed on a new three-year$55.0 million loan facility withEmerald Creek Capital . Proceeds were immediately drawn, subject to certain customary reserves. The facility bears a variable interest rate of one month LIBOR plus 6.9% with a floor of 7.0% and has two 12-month options to extend, but may be repaid at any time, subject to notice and a minimum interest payment equal to the positive difference between interest paid on the loan through the pre-payment date and one-year's interest. In effect, the loan may be repaid after 12 months without the payment of any premium.
Our Strategic approach to COVID-19 pandemic related Issues
In response to the COVID-19 pandemic, we took a number of significant steps to preserve our liquidity and we modified our business strategy 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. These actions included, without limitation, the following: ?To address the venue shutdowns in theU.S. , we laid off most of our hourlyU.S. cinema and live theatre level staff. We regret being forced into this position, but we were not eligible for Paycheck Protection Program ("PPP") funding. ?InAustralia and New Zealand , we were able to keep our cinema level staff substantially in place, due to governmental assistance provided to our employees for which we did qualify (i.e., JobKeeper Payment program inAustralia and the Wage Subsidy Scheme inNew Zealand ). These programs have now concluded. ?Across our global cinema circuit, in 2020 we negotiated abatement and/or deferral arrangements with substantially all of our cinema landlords. During the first quarter of 2021, and in light of our continuing liquidity challenges, and in order to establish our long-term viability, we have continued to negotiate with our landlords to reach accommodations to abate or defer a substantial portion of our rent obligations.
?We suspended non-essential operating expenditures.
?Where possible, we reduced utilities and essential operating expenditures to minimum levels necessary while our venues were closed or operating on a limited basis.
?We terminated or deferred all non-essential capital expenditures and negotiated deferrals and abatements with our various vendors.
?We introduced an improved cash management process, with enhanced
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?We worked with our lenders in the
?We upgraded our cinema air filtration systems, installed partitions, and equipped our employees with personal protection equipment ("PPE"). And, we have adopted and maintained enhanced cleaning protocols.
?We upgraded our mobile platforms to allow our cinema guests to (i) reserve and buy tickets in a way that automatically creates social distancing and (ii) in theU.S. , order F&B online.
?As discussed in greater detail below, we monetized our principal non-income producing raw land holdings and have progressed towards the sale of certain other real estate assets.
From a corporate G&A perspective, we:
?Implemented measures to reduce corporate-level employment costs, including (i) deferring Company 401(k) matching contributions, (ii) eliminating cash bonuses for senior management for 2020, and (iii) eliminating certain corporate-level positions to reduce our overall G&A expense;
?Suspended non-essential travel and all entertainment expenses; and
?Took advantage, in theU.S. and internationally where we were eligible, of available forms of governmental assistance including but not limited to payroll subsidies and tax benefits. We will continue to seek any available potential benefits under future government programs for which we qualify domestically and internationally. In theU.S. , because of our status as a public company, we are not eligible for funding under the Shuttered Venue Operators Grant program or the PPP. We believe that our ineligibility on this basis violates the spirit of theU.S. legislation that was passed.
In addition, during the COVID-19 pandemic period, we worked to develop new streams of income:
?We launched our new, art-focused streaming service, Angelika Anywhere.
?We developed special programs to allow socially distanced friends & family screenings, and access to our screens for gaming purposes.
?In the
Historically, we have used the cash flow from our cinemas to build our real estate asset base. But one of the benefits of diversification is that, when the need arises, we can reverse that flow. In 2020 and into the first quarter of 2021, we looked to our real estate assets to assist in supporting the rest of our Company's operations and took steps to monetize certain non-core real estate assets. These are assets which had not suffered a decline in value due to the COVID-19 pandemic and commanded values substantially in excess of theirNet Book Value. More specifically: ?OnMarch 4, 2021 , we sold 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$13.5 million (NZ$18.7 million) Net Book Value. As raw land, this asset produced no operating income while continuing to realize carrying costs, such as taxes and insurance and land-use planning expenses. ?OnMarch 5, 2021 , we sold 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 proceeds. As raw land, this asset produced no operating income. ?InJanuary 2021 , we listed for sale our Auburn Redyard Centre (including the Telstra building and the 114,000 square feet of undeveloped land) located inAuburn , a growing suburb ofSydney inNew South Wales . The Net Book Value of this property is$28.7 million (AU$37.7 million). We entered into exclusive negotiations with a qualified buyer to sell this property and we anticipate closing during the second quarter of 2021. ?InFebruary 2021 , we listed ourRoyal George Theatre property inChicago for sale. Following a diligent marketing campaign, we are now in contract negotiations with the highest and best bidder. The Net Book Value of this property is$1.8 million . OnMay 14, 2021 , we entered into a definitive purchase and sale agreement with a qualified buyer. The sale of theRoyal George Theatre is expected to be completed during the second quarter of 2021. In arriving at the determination to rely upon certain of our non-core real estate assets to bridge this gap in cinema cashflow, we considered a variety of alternatives, including the issuance of additional common stock and the issuing of high interest rate "junk" debt. We determined that it would be in the best interests of our Company and our stockholders generally to not dilute equity by issuing stock in the middle of an unprecedented pandemic and not to mortgage our future with high interest rate debt. Accordingly, we are taking this opportunity to cull our real estate holdings and monetize certain assets which are not subject to distressed market conditions or fire sale pricing. 35
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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 61 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 cash flows generated by our cinema operations to fund the front-end cash demands of our real estate development business. Now, we are relying 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, 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"). This is one of our strategic priorities in upgrading the F&B menu at a
number of our global cinemas. 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 labor cost and cost of
goods sold, 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 first quarter ended March 31, 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 under various brands:
?in the
?in
?in
Shown in the following table are the number of locations and screens in our
theater 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 7 51 7 Reading Cinemas
New South
Wales 6 44 4 2 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 25 196 19 6
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 7 5
GRAND TOTAL 61 504 49 12
(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.
Real Estate Overview
We engage in the real estate business through the development and our ownership and rental or licensing to third parties of retail, commercial, and live theatre assets. We own the fee interests in all of our live theatres and in 12 of our cinemas (as presented in the preceding table). 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.
Our real estate activities have historically consisted principally of:
?the ownership of fee or long-term leasehold interests in properties used in our cinema exhibition activities or which were acquired for the development of cinemas or cinema-based real estate development projects;
?the acquisition of fee interests in land for general real estate development;
?the licensing to production companies of our live theatres; and,
?the redevelopment of our existing fee-owned cinema or live theatre sites to their highest and best use.
In light of the geographic reach of our business, and the highly localized nature of the real estate business, we have historically made use of third-party contractors to provide on-site management and leasing administrations functions for ourAustralia and New Zealand real estate portfolio. We have begun, however, in recent periods to selectively build our internal resources in this regard, allowing us to terminate all third-party contracts. 37
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Cinema Exhibition
Our cinema revenues consist primarily of admissions, F&B, advertising, gift card purchases, theater 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. While our capital projects in recent years have been focused on growing our real estate segment, we have also maintained our focus on improving and enhancing our cinema exhibition portfolio, as discussed below:
Cinema Additions and Enhancements
The latest additions and enhancements to our cinema portfolio as of
?Opened a new state-of-the-art six-screen Cinema inQueensland, Australia : OnDecember 22, 2020 , we opened a six-screen Reading Cinemas at Jindalee featuring a TITAN LUXE with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and newly curated enhanced F&B offering. ?U.S. Renovations: 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 COVID-19 shutdown. ?As of the date of this Report, we have converted 94 of our 238 U.S. auditoriums to luxury recliner seating and, when the renovation of theKahala Mall theatre resumes we will add an additional eight auditoriums to luxury recliner seating.
Cinema Pipeline
The top-to-bottom renovation of ourConsolidated Theatres at theKahala Mall inHonolulu in theU.S. continues to be suspended due to the governmental restrictions imposed as a result of the COVID-19 pandemic. We do not have a definitive schedule for recommencing this renovation. When reopened, the theatre will feature recliner seating throughout along with a state-of-the-art kitchen and an elevated F&B menu. By the end of 2022, we anticipate adding three new Reading Cinemas, totaling 19-screens, to our Australian cinema circuit pursuant to Agreements to Lease: (i)Altona inMelbourne , VIC, (ii) Traralgon outside ofMelbourne , VIC, and (iii)South City Square inBrisbane , QLD. We have commenced the fit-out ofAltona and expect to open by the end ofJune 2021 . With respect to our Traralgon cinema, the landlord has been delayed in turning over the space for the cinema fit-out, and discussions about the tenancy and scheduling are ongoing. We anticipate that the cinema in Traralgon will open later in 2021. We expect hand-over from the landlord ofSouth City Square early in 2022, with an opening by mid-year. Our focus with respect to new cinemas includes state-of-the-art projection and sound, luxury recliner seating, enhanced F&B (typically including alcohol service), and typically at least one major TITAN-type presentation screen. Our focus is on providing best-in-class services and amenities that will differentiate us from in-home and mobile viewing options. We believe that a night at the movies should be a special and premium experience and, indeed, that it must be able to compete with the variety of options being offered to consumers through other platforms. During 2021, we will continue to focus on the enhancement of our proprietary online ticketing and F&B capabilities and social media interfaces. These are intended to enhance the convenience of our offerings and to promote guest affinity with the experiences and products that we are offering. We will also be focusing on post-COVID-19 technology improvements to facilitate improved social distancing and contactless experiences. Further, expanding our online capabilities, by the end of 2020, we offered online ordering of our full menu F&B for all of our brands in theU.S. through their respective mobile apps. During 2021, we will expand this to our Australian and New Zealand brands. InDecember 2020 , we launched our very own streaming service, Angelika Anywhere, in theU.S. which is curated for film lovers of independent and foreign film, documentaries, and the more specialized movies from the major studios. We will be expanding toAustralia and New Zealand in 2021. 38
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Cinema Closures
As of the end of the first quarter of 2020, all of our cinemas inthe United States ,Australia, and New Zealand were temporarily closed in accordance with the directions and recommendations of the relevant local, state, and federal authorities relating to the COVID-19 pandemic. As the COVID-19 pandemic outbreak has been largely contained in most areas inAustralia and New Zealand , and the restrictions have been reduced by local government authorities, we have reopened in those jurisdictions. As of the date of this Report, we have reopened all of our Australian andNew Zealand circuit with the exception of our Reading Cinemas at Courtenay Central, which remains temporarily closed due to seismic concerns. In theU.S. , mass roll outs of the vaccination have allowed more of our cinemas to reopen and, as of the date of this Report, we have reopened 83% of our theaters. We expect to announce reopening dates for our other cinemas in theU.S. once local government restrictions permit the opening of movie theaters and more new film product becomes available. InJanuary 2019 , we temporarily closed our Courtenay Central cinema inWellington, New Zealand . This temporary closure is related to seismic concerns and is currently ongoing. While we continue to advance our planning for the center and have continued conversations with consultants, potential tenants, and city representatives, given the uncertainty surrounding the COVID-19 pandemic, we have no fixed time frame for the commencement of the redevelopment of this property. Some of our cinemas have encountered new competition, and we believe that others will benefit from planned refurbishment and upgrading. The scope, extent, and timing of such refurbishment and upgrading will be necessarily impacted by our need to preserve capital and liquidity while we work through the various challenges posed by the ongoing COVID-19 pandemic.
Upgrades to our Film Exhibition Technology and Theater Amenities
Prior to COVID-19, we focused on areas of the well-established cinema business where we believe we have growth potential and ultimately, provide long-term value to our stockholders. We invested in both the upgrading of our existing cinemas and the development of new cinemas to provide our customers with premium offerings, including state-of-the-art presentation (including sound, lounges, and bar service) and luxury recliner seating. As ofMarch 31, 2021 , all of the upgrades to our theater 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 theater circuit) 61 504 IMAX 1 1 TITAN XC and LUXE 25 30 Dine-in Service Gold Lounge (AU/NZ)(1) 9 24 Premium (AU/NZ)(2) 15 39 Spotlight (U.S.)(3) 1 6 Upgraded Food & Beverage menu (U.S.)(4) 16 n/a Premium Seating (features recliner seating) 27 167 Liquor Licenses (5) 34 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 the
(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 theater auditorium. For accounting purposes, we capitalize the cost of successfully purchasing or applying for liquor licenses meeting certain thresholds as an intangible asset due to long-term economic benefits derived on future sales of alcoholic beverages. As ofMarch 31, 2021 , we have pending applications for additional liquor licenses for six theaters in theU.S. and one inAustralia . 39
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Real Estate
As of
?
?two single-auditorium live theatres inManhattan (Minetta Lane and Orpheum) and a four-auditorium live theatre complex, including the accompanying ancillary retail and commercial tenant, inChicago (The Royal George). The Royal George is classified as held for sale for financial reporting purposes atMarch 31, 2021 and is currently under a definitive purchase and sale agreement;
?our worldwide headquarters' building in
?the ancillary retail and commercial tenants at some of our non-ETC cinema properties.
At the start of the spread of the COVID-19 pandemic, varied trading restrictions, some enforced by the government, affected many of our tenants at our ETC's inAustralia and New Zealand . Although there were varied trading restrictions, most of these properties remained open for business through the COVID-19 crisis. As of the date of this Report, the majority of our tenants are currently open for business at our Australian andNew Zealand properties with continued health and safety measures in place. Most of the rentable retail portions of our Courtenay Central location inNew Zealand continues to be closed sinceJanuary 2019 due to seismic concerns, however, two tenants remain open and are trading as of the date of this Report. We are in exclusive negotiations with a qualified buyer to sell theAuburn Redyard property and onMay 14, 2021 , we entered into a definitive purchase and sale agreement with respect to ourRoyal George Theatre property. While no assurances can be given, we anticipate that both transactions will close during the second quarter of 2021. In addition, as ofMarch 31, 2021 , we had various unimproved real estate held for development in connection with existing ETCs inAustralia and New Zealand and properties (located principally inPennsylvania ) used in our legacy activities.
Our key real estate transactions in recent years are as follows:
Strategic Acquisitions
?Exercise of Option to Acquire Ground Lessee's interest in Ground Lease and Improvements Constituting the Village East Cinema - OnAugust 28, 2019 , we exercised our option to acquire the ground lessee's interest in the ground lease underlying and the real property assets constituting our Village East Cinema inManhattan . The purchase price under the option is$5.9 million . It was initially agreed that the transaction would close on or aboutMay 31, 2021 . OnMarch 29, 2021 , we extended this closing date toJanuary 1, 2023 . As the transaction is a related party transaction, it was reviewed and approved by our Board'sAudit and Conflicts Committee and supported by a third-party valuation, which showed substantial value in the option and, upon closing, will result in an annual rent savings of$590,000 . Strategic Asset SalesUnited States : ?Sale of Landholding inCoachella, California - This non-income producing land was sold onMarch 5, 2021 for$11.0 million . As a 50% member ofShadow View Land andFarming LLC , the entity that owned that property, our Company received 50% of the sale proceeds.New Zealand :
?Sale of Landholding in Manukau/Wiri,
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Value-creating Opportunities
The implementation of most of our real estate development plans have been delayed due to COVID-19 and the need to conserve capital. However, we continue to believe that our Company's strong real estate asset base will provide (i) increased financial security through the potential monetization of certain non-core real estate assets or (ii) provide collateral for strategic re-financing, in each case to meet liquidity demands. We intend to continue to emphasize the prudent development of our real estate assets.
?Sepulveda Office Building (Culver City ,U.S. ) - OnMay 27, 2020 , we leased on a multi-year basis the entire second floor of our headquarters 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 has been responsible for building out its space. Straight line rent commenced inMay 2020 for ourCulver City tenant and cash rent payment began inOctober 2020 . Tenant improvements commenced inJanuary 2021 and, it is anticipated, will be complete by the end ofMay 2021 . ?44 Union Square Redevelopment (New York City ,U.S. ) - 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 shutdown non-essential construction and business, including construction work at our site. However, the construction of the improvements necessary to obtain a core and shell temporary certificate of occupancy were substantially completed prior to the shutdown. OnJuly 1, 2020 , the site reopened for construction activities, and 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. 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. 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. ?Minetta Lane Theatre (New York City ,U.S. ) - Prior to COVID-19, our theatre was used by Audible, a subsidiary of Amazon, to present plays featuring a limited cast of one or two characters and special live performance engagements, which it recorded and made available to the public through the Audible streaming service. Due to COVID-19, no shows have been presented sinceMarch 2020 and the theatre remains closed to the public. It is currently anticipated thatNew York City theatre venues will reopen on or about September. 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 whenNew York City begins to show signs of recovery from the impacts of the COVID-19 pandemic. In the interim, we will continue our license arrangement with Audible. ?Cinemas 1,2,3 Redevelopment (New York City ,U.S. ) - Given the closure of our two cinemas inNew York City's UpperEast Side , we have determined to continue to operate this location as a cinema for at least the near term. We are pursuing 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.
?Courtenay Central Redevelopment (Wellington, New Zealand ) - 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 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, potential tenants, and city representatives to advance our redevelopment plans for this property. 41
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Corporate Matters
?Stock Repurchase Program - OnMarch 10, 2020 , our Board of Directors authorized a$25.0 million increase to our 2017 stock repurchase program, bringing our total authorized repurchase amount remaining to$26.0 million , and extended the program toMarch 2, 2022 . ThroughMarch 31, 2021 , we have repurchased 1,792,819 shares of Class A Common Stock at an average price of$13.39 per share (excluding transaction costs). No shares were purchased during the three months endedMarch 31, 2021 .
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.
?Board Compensation and Stock Options Committee - OurCompensation and Stock Options Committee , in early 2021, determined to pay out no cash bonuses, with respect to 2020, to any Company senior executives, including our CEO. Following the expiration of theReading International Inc. 2010 Stock Incentive Plan (as amended, the "2010 Plan"), our Board of Directors adopted theReading International, Inc. 2020 Stock Incentive Plan (the "2020 Plan"), which was approved by our stockholders onDecember 8, 2020 . The aggregate total number of shares of Common Stock authorized for issuance under the 2020 Plan was 1,250,000 shares of Class A Common Stock and 200,000 shares of ClassB Stock . In addition, if any awards that were outstanding under the 2010 Plan are subsequently forfeited or if the related shares are repurchased, a corresponding number of shares will automatically become available for issuance under the 2020 Plan, resulting in an increase in the number of shares available for issuance under the 2020 Plan (up to an additional 1,096,938 shares of Class A Common Stock). OnApril 5, 2021 , the Board of Directors issued 262,830 RSUs to senior management. ? 42
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Our Financing Strategy
Prior to the interruptions 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 has provided us with availability under our available 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 theaters, and the trading restrictions placed on many of our real estate tenants at our ETCs, we had fully drawn-down on all our available operating lines-of-credit by the end of the first quarter of 2020, to provide future liquidity by the end of the first quarter of 2020. As ofMarch 31, 2021 , we had$5.1 million available on ourU.S. Bank of America Credit Facility and have the ability to redraw these funds as Management sees fit to provide liquidity for our cinema operations, as long as the current required liquidity tests continue to be met. For more information about our liquidity and financing strategy, please refer to Note 3 - Impact of COVID-19 Pandemic on Liquidity to the Consolidated Financial Statements included herein.Bank of America Loan OnMarch 6, 2020 , we (i) entered into an amendment for our$55.0 million credit facility withBank of America , which supports ourU.S. Cinema operations, extending the maturity date toMarch 6, 2023 and (ii) also extending the term of our$5.0 million line of credit withBank of America toMarch 6, 2023 . OnAugust 7, 2020 , we entered into a Waiver and Second Amendment to the Second Amended and Restated Credit Agreement ("Amendment") modifying certain financial covenants within this credit facility and temporarily suspended the testing of certain other covenant tests through measurement period endingSeptember 30, 2021 . The testing of the financial covenant resumes for the measurement period endingDecember 31, 2021 . The modifications also include a new covenant related to maintenance of certain liquidity levels. Under the Amendment, cash balances in excess of$3.0 million will be used to paydown the facility debt. However, this is not a reduction in that credit facility and, subject to the satisfaction of draw down requirements, will be available for re-borrowing. In addition to the covenant modifications, the interest rate on borrowings under this facility was fixed at 3.0% above the "Eurodollar" rate, which itself now has a floor of 1.0%. As ofMarch 31, 2021 , we had$5.1 million available under this credit facility. In regard to the line of credit, we also modified the interest rate, wherein the LIBOR portion of the rate now has a floor of 1.0%. Such modifications were not considered to be substantial underU.S. GAAP.
Cinemas 1,2,3 Term Loan
OnMarch 13, 2020 ,Sutton Hill Properties LLC , our 75% subsidiary, increased its term loan withValley National Bank to$25.0 million from$20.0 million , with an interest rate based on the greater of (i) the two-yearU.S. Treasury Rate plus 2.5% or (ii) 4.25%. The current interest rate used for the Valley National loan is 4.25%. This loan matures onApril 1, 2022 with two six-month options to extend throughApril 1, 2023 .
NAB Corporate Term Loan (AU)
Prior to COVID-19, inMarch 2019 , we amended our Revolving Corporate Markets Loan Facility with NAB from a facility comprised of (i) a AU$66.5 million loan facility and (ii) a bank guarantee of AU$5.0 million into (i) a AU$120.0 million Corporate Loan facility, with a due date ofDecember 31, 2023 , of which AU$80.0 million is revolving and AU$40.0 million is core and (ii) a Bank Guarantee Facility of AU$5.0 million at a rate of 1.85% per annum. Such debt modifications of this particular term loan were not considered to be substantial underU.S. GAAP. OnAugust 6, 2020 , we modified certain covenants within this Revolving Corporate Markets Loan Facility with NAB (the "NAB Amendment"). These modifications apply until the quarter endedJune 30, 2021 . In addition, for the period in which these covenant modifications apply, the interest rate on amounts borrowed under the facility is 1.75%. The NAB Amendment modifies the Fixed Charge Cover Ratio testing for the quarters throughJune 30, 2021 so that ratio testing is calculated on each respective quarter's trading performance, as opposed to annually and waives the leverage ratio testing through the quarter endedJune 30, 2021 . Such a modification was not considered to be substantial underU.S. GAAP. OnDecember 29, 2020 , to fund the completion of our recently opened cinema in Jindalee,Queensland , we increased the core portion of our Revolving Corporate Markets Loan Facility by AU$3.0 million and is repayable in six monthly installments of$500,000 beginningApril 30, 2021 until fully repaid onOctober 31, 2023 . This amendment increases the Facility Limit to 43 -------------------------------------------------------------------------------- AU$123.0 million, which will be reduced back to AU$120.0 million as the Jindalee funding is repaid. We further modified certain covenants within this Revolving Corporate Markets Loan Facility with NAB. The Fixed Charge Cover Ratio testing periods were further modified through the quarter endedSeptember 30, 2021 . The Leverage ratio was also modified through quarter endedJune 30, 2022 .
Westpac Bank Corporate Credit Facility (NZ)
OnDecember 20, 2018 , we restructured our Westpac Corporate Credit Facilities. The maturity of the 1st tranche (general/non-construction credit line) was extended toDecember 31, 2023 , with the available facility being reduced from NZ$35.0 million to NZ$32.0 million. The facility bears an interest rate of 1.75% above the Bank Bill Bid Rate on the drawn down balance and a 1.1% line of credit charge on the entire facility. OnJune 29, 2020 , Westpac pushed out theJune 30, 2020 covenant testing date toJuly 31, 2020 . OnJuly 27, 2020 , Westpac waived the requirement to test certain covenants as ofJuly 31, 2020 . This agreement also increased the interest rate and line of credit charge to 2.40% above the Bank Bill Bid Rate and 1.65%, respectively. The maturity date was extended toJanuary 1, 2024 . Such modifications of this facility were not considered to be substantial underU.S. GAAP. OnApril 29, 2021 , Westpac waived the requirement to test certain covenants as ofMarch 31, 2021 . OnMay 7, 2021 , we repaid$11.2 million (NZ$16.0 million) of this debt, which also represented a permanent reduction in this facility.
44 Union Square Financing
Construction of our 73,000 rentable square foot retail and office building at44 Union Square inManhattan is substantially complete and a core & shell temporary certificate of occupancy has been issued to permit the construction of tenant improvements. The property is now in its lease-up phase and we have retired all of the construction debt associated with that project using internally generated funds. OnMay 7, 2021 , we closed on a new three-year$55.0 million loan facility withEmerald Creek Capital . Proceeds were immediately drawn, subject to certain customary reserves. The facility bears a variable interest rate of one month LIBOR plus 6.9% with a floor of 7.0% and has two 12-month options to extend, but may be repaid at any time, subject to notice and a minimum interest payment equal to the positive difference between interest paid on the loan through the pre-payment date and one-year's interest. In effect, the loan may be repaid after 12 months without the payment of any premium.
Refer to Note 11 - Borrowings for additional information. ?
44
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Please refer to our 2020 Form 10-K for more details on our cinema and real estate segments.
RESULTS OF OPERATIONS
The table below summarizes the results of operations for each of our principal business segments along with the non-segment information for the quarters endedMarch 31, 2021 andMarch 31, 2020 , respectively: Three Months Ended % Change March 31, March 31, Fav/ (Dollars in thousands) ?2021 ?2020 ?(Unfav) SEGMENT RESULTS Revenue Cinema exhibition$ 18,115 $ 46,310 (61) % Real estate 3,323 4,602 (28) % Inter-segment elimination (131) (1,684) 92 % Total revenue 21,307 49,228 (57) % Operating expense Cinema exhibition (22,013) (43,976) 50 % Real estate (2,655) (2,760) 4 % Inter-segment elimination 131 1,684 92 % Total operating expense (24,537) (45,052) 46 % Depreciation and amortization Cinema exhibition (3,578) (3,778) 5 % Real estate (1,840) (1,300) (42) % Total depreciation and amortization (5,418) (5,078) (7) % General and administrative expense Cinema exhibition (799) (1,210) 34 % Real estate (196) (355) 45 % Total general and administrative expense (995) (1,565) 36 % Segment operating income Cinema exhibition (8,275) (2,654) (>100) % Real estate (1,368) 187 (>100) % Total segment operating income (loss)$ (9,643) $ (2,467) (>100) % NON-SEGMENT RESULTS Depreciation and amortization expense (231) (192) (20) % General and administrative expense (4,103) (4,380) 6 % Interest expense, net (4,363) (1,789) (>100) % Equity earnings of unconsolidated joint ventures (50) 78 (>100) % Gain (loss) on sale of assets 46,545 - - % Other income (expense) 1,641 (218) >100 % Income before income taxes 29,796 (8,968) >100 % Income tax benefit (expense) (7,728) 3,013 (>100) % Net income (loss) 22,068 (5,955) >100 % Less: net income (loss) attributable to noncontrolling interests 3,103 (80) >100 % Net income (loss) attributable to RDI common stockholders$ 18,965 $ (5,875) >100 % Basic earnings (loss) per share$ 0.87 $ (0.27) >100 %
Consolidated and Non-Segment Results:
First Quarter Results
Net income attributable to RDI common stockholders for the quarter endedMarch 31, 2021 increased by$24.8 million , to$19.0 million , when compared to the same period in the prior year, and basic EPS increased by$1.14 , to$0.87 for the quarter endedMarch 31, 2021 compared to the quarter endedMarch 31, 2020 . These increases were due to the sale of our non-income producing land in Manukau,New Zealand andCoachella, California . Revenue for the quarter endedMarch 31, 2021 decreased by 57%, or$27.9 million , to$21.3 million compared to the same period prior year. This decrease was attributable to (i) the ongoing temporary closure of some of our cinemas in the first quarter of 2021 compared to first quarter of 2020 when our global cinemas closed during the last half ofMarch 2020 due to the COVID-19 pandemic, (ii) reduced seating occupancy as a result of social distancing measures, and (iii) changes to the release schedule by film distributors, which collectively led to a significant drop in attendance compared to first quarter of 2020. This was further impacted by the ongoing temporary closures of ourU.S. Live Theatres and the rent abatements provided to a handful of our third-party tenants as a result of the COVID-19 pandemic. 45
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Non-Segment General & Administrative Expenses
Non-segment general and administrative expense for the quarter endedMarch 31, 2021 decreased by 6%, or$0.3 million , to$4.1 million compared to the quarter endedMarch 31, 2020 due to (i) savings in payroll costs as a result of the wage subsidy program inAustralia (which expired onMarch 27, 2021 ) and a reduction in corporate staff, (ii) reduced costs related to corporate airfare and travel as a result of COVID-19 restrictions, and (iii) decreases in professional and legal services. This is partially offset by the strengthening of the Australian andNew Zealand dollar against theU.S. dollar.
Income Tax Expense
Income tax expense for the quarter ended
Business Segment Results
As of
?owned and operated five ETCs located inNewmarket Village (a suburb ofBrisbane ),Belmont (a suburb ofPerth ), Auburn Redyard (a suburb ofSydney ) andCannon Park (in Townsville) inAustralia , and Courtenay Central (inWellington ) inNew Zealand ; ?owned and operated our headquarters' office building inCulver City (an emerging high-tech and communications hub inLos Angeles County ) 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 three developed commercial properties inManhattan andChicago improved with live theatres comprising six stages and ancillary retail and commercial space;
?owned a 75% managing member interest in a limited liability company which in turn owns the fee interest in Cinemas 1,2,3;
?owned ourUnion Square development property with approximately 73,000 square feet of net leasable area comprised of retail and office space. The44 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 ; and
?owned 197-acres principally in
Our Company transacts business inAustralia and New Zealand and is subject to risks associated with fluctuating foreign currency exchange rates. During the first quarter of 2021, the Australian dollar andNew Zealand dollar strengthened against theU.S. dollar by 17.5% and 13.3%, respectively, compared to the same period prior year. ? 46
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Cinema Exhibition
The following table details our cinema exhibition segment operating results for
the quarters ended
Three Months Ended
Three
March 31, March 31, Months
(Dollars in thousands) ?2021 % of Revenue ?2020 % of Revenue Ended
REVENUE
United
States Admissions revenue$ 1,885 10%$ 13,914 30% (86) % Food & beverage revenue 1,241 7% 6,964 15% (82) % Advertising and other revenue 664 4% 2,429 5% (73) %$ 3,790 21%$ 23,307 50% (84) % Australia Admissions revenue$ 7,463 41%$ 12,510 27% (40) % Food & beverage revenue 3,722 21% 5,611 11% (34) % Advertising and other revenue 932 5% 1,466 4% (36) %$ 12,117 67%$ 19,587 42% (38) % New Zealand Admissions revenue$ 1,415 8%$ 2,265 5% (38) % Food & beverage revenue 657 3% 983 2% (33) % Advertising and other revenue 135 1% 168 1% (20) %$ 2,207 12%$ 3,416 8% (35) % Total revenue$ 18,114 100%$ 46,310 100% (61) % OPERATING EXPENSE United States Film rent and advertising cost$ (810) 4%$ (7,258) 16% 89 % Food & beverage cost (314) 2% (1,820) 4% 83 % Occupancy expense (6,254) 35% (6,585) 14% 5 % Other operating expense (3,032) 17% (9,242) 20% 67 %$ (10,410) 58%$ (24,905) 54% 58 % Australia Film rent and advertising cost$ (3,028) 17%$ (5,464) 12% 45 % Food & beverage cost (836) 5% (1,155) 2% 28 % Occupancy expense (2,186) 12% (3,888) 8% 44 % Other operating expense (3,538) 19% (5,387) 12% 34 %$ (9,588) 53%$ (15,894) 34% 40 % New
Zealand Film rent and advertising cost
46 %
Food & beverage cost (124) 1% (195) 1% 36 %
Occupancy expense (455) 2% (819) 2% 44 %
Other operating expense (870) 5% (1,107) 2% 21 %
$ (2,014) 11% $ (3,176) 7% 37 %
Total operating expense $ (22,012) 122% $ (43,975) 95% 50 %
DEPRECIATION, AMORTIZATION, GENERAL AND
ADMINISTRATIVE EXPENSE
United
States Depreciation and amortization $ (1,828) 10% $ (2,019) 4% 9 %
General and administrative
expense (513) 3% (869) 2% 41 %
$ (2,341) 13% $ (2,888) 6% 19 %
Australia Depreciation and amortization $ (1,426) 8% $ (1,393) 3% (2) %
General and administrative
expense (287) 1% (370) 1% 22 %
$ (1,713) 9% $ (1,763) 4% 3 %
New
Zealand Depreciation and amortization $ (324) 2% $ (366) 1% 11 %
General and administrative
expense - 0% 29 (0)% 100 %
$ (324) 2% $ (337) 1% 4 %
Total depreciation, amortization, general
and administrative expense$ (4,378) 24%$ (4,988) 11% 12 %
OPERATING INCOME (LOSS) - CINEMA
United States$ (8,961) (50)%$ (4,487) (10)% (100) % Australia 816 5% 1,930 4% (58) % New Zealand (131) (1)% (97) (0)% (35) %
Total Cinema operating income (loss)
First Quarter Results
Cinema Segment operating income
Cinema segment operating income for the quarter endedMarch 31, 2021 decreased by$5.6 million , to a loss of$8.3 million when compared to the same period in 2020. This decrease is primarily driven by the repercussions caused by the COVID-19 pandemic, such as (i) the continued temporary closure of some of our cinemas in the first quarter of 2021 compared to first quarter of 2020 where only part ofMarch 2020 was impacted by theaters being closed worldwide due to the COVID-19 pandemic, (ii) the reduced capacity as a result of social distancing measures, and (iii) the delays in release schedules by film distributors, which collectively led to a significant drop in attendance and a reduction in revenue. However, this decrease is partially mitigated by (i) the reopening of the majority of our cinemas worldwide, (ii) the absence of internal rent expense from some of our fee-interest cinemas due to the COVID-19 pandemic, and (iii) rent abatements received from a number of our landlords. 47
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Revenue
Cinema revenue decreased by 61%, or
Below are the changes in our cinema revenue by market:
Cinema revenue decreased by 84%, or$19.5 million , to$3.8 million for the quarter endedMarch 31, 2021 , due to an 88% decrease in attendance. These first quarter 2021 decreases were due primarily to (i) the ongoing temporary closure of the majority of ourU.S. Cinemas (primarily inCalifornia andNew York City ) for most of the first quarter 2021, (ii) the social distancing measures put in place as a result of the COVID-19 pandemic, and (iii) the lack of a consistent and compelling movie slate from the major studios. The impact of these issues in Q1 2021 was partially reduced by the reopening of the majority of ourU.S. cinemas during the month ofMarch 2021 .
Cinema revenue decreased by 38%, or$7.5 million , to$12.1 million for the quarter endedMarch 31, 2021 , due to a 52% decrease in attendance. While our Australian cinemas were mostly opening during the first quarter of 2021, the lack of film product with releases being pushed farther into 2021 and beyond and social distancing requirements impacted revenue. This was partially offset by the strengthening of the Australian dollar when compared to theU.S. dollar.
Cinema revenue decreased by 35%, or$1.2 million , to$2.2 million for the quarter endedMarch 31, 2021 , due to a 47% decrease in attendance. While ourNew Zealand cinemas were mostly opening during the first quarter of 2021, the lack of film product with releases being pushed farther into 2021 and beyond and social distancing requirements impacted revenue. This was partially offset by the strengthening of theNew Zealand dollar when compared to theU.S. dollar.
Operating expense
Operating expense for the quarter endedMarch 31, 2021 decreased by 50%, or$22.0 million , to$22.0 million . This was due to a decline in film rent expense as a result of cinemas being closed and lack of new films, and savings in internal and external rent due to abatements received as a result of the COVID-19 pandemic. Furthermore, the temporary closures of our cinemas ultimately led to employee terminations in late March of 2020 in theU.S. resulting in a reduction in labor costs. Conversely, inAustralia and New Zealand , there was no need to terminate employees as we enjoyed the benefits of wage subsidies provided by their respective governments, which covered virtually all of the costs of our cinema level personnel. The wage subsidy program inAustralia was reduced at the beginning of 2021 but still continued to cover a portion of the costs, however, this program ended onMarch 27, 2021 . The wage subsidy program inNew Zealand ended onAugust 25, 2020 .
Depreciation, amortization, general and administrative expense
Depreciation, amortization, general and administrative expense for the quarter endedMarch 31, 2021 decreased by 12%, or$0.6 million , to$4.4 million , compared to the same period in 2020. This decrease is attributable to the savings in payroll costs as a result of the wage subsidy programs and reduction in corporate staff costs partially offset by the strengthening of the Australian andNew Zealand dollar against theU.S. dollar. ? 48
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Real Estate
The following table details our real estate segment operating results for the
quarters ended
Three Months Ended
Three
March 31, % of March 31, % of Months
(Dollars in thousands) ?2021 ?Revenue ?2020 ?Revenue Ended
REVENUE
Live theatre rental and
United States ancillary income $ 82 2% $ 574 12% (86) %
Property rental income 138 5% 51 1% >100 %
220 7% 625 13% (65) %
Australia Property rental income 2,874 86% 3,579 78% (20) %
New Zealand Property rental income 230 7% 398 9% (42) %
Total revenue $ 3,324 100% $ 4,602 100% (28) %
OPERATING EXPENSE
United States Live theatre cost $ (95) 3% $ (342) 7% 72 %
Property cost (341) 10% (622) 14% 45 %
Occupancy expense (397) 12% (159) 3% (>100) %
(833) 25% (1,123) 24% 26 %
Australia Property cost (765) 23% (651) 14% (18) %
Occupancy expense (600) 18% (584) 13% (3) %
(1,365) 41% (1,235) 27% (11) %
New Zealand Property cost (342) 10% (299) 6% (14) %
Occupancy expense (116) 4% (103) 3% (13) %
(458) 14% (402) 9% (14) %
Total operating expense $ (2,656) 80% $ (2,760) 60% 4 %
DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE
EXPENSE
Depreciation and
United States amortization $ (746) 22% $ (203) 5% (>100) %
General and administrative
expense (184) 6% (191) 4% 4 %
(930) 28% (394) 9% (>100) %
Depreciation and
Australia amortization $ (841) 25% $ (863) 18% 3 %
General and administrative
expense (9) 1% (168) 4% 95 %
(850) 26% (1,031) 22% 18 %
Depreciation and
New Zealand amortization (253) 8% (234) 5% (8) %
General and administrative
expense (2) 0% 4 (0)% (>100) %
(255) 8% (230) 5% (11) %
Total depreciation, amortization, general and
administrative expense $ (2,035) 61% $ (1,655) 36% (23) %
OPERATING INCOME (LOSS) - REAL ESTATE
United States $ (1,543) (46)% $ (892) (19)% (73) %
Australia 659 20% 1,313 29% (50) %
New Zealand (483) (15)% (234) (6)% (>100) %
Total real estate operating income (loss) $ (1,367) (41)% $ 187 4% (>100) %
First Quarter Results
Real Estate Segment Income
Real estate segment operating income for the quarter ended March 31, 2021
decreased by $1.6 million , to a loss of $1.4 million , compared to the same
period in 2020. This decrease is attributable to the ongoing temporary closures
of our U.S. Live Theatres , the decision to abate internal rent revenue from some
of our fee-interest cinemas, and the rent abatements provided to certain
third-party tenants as a result of the COVID-19 pandemic. These results were
partially offset by rental income received from our Culver City tenant which did
not exist in 2020: straight line rent commenced May 2020 .
Revenue
Real estate revenue for the quarter endedMarch 31, 2021 decreased by 28%, or$1.3 million , to$3.3 million , compared to the same period in 2020. This decrease is attributable to the ongoing temporary closures of ourU.S. Live Theatres and the issuance of rent abatements to certain third-party Australian tenants. The decrease was further impacted by the decision to abate intercompany rent payable by Reading Cinemas as anchor tenants at some of our ETCs in response to the closures and revenue reductions caused by COVID-19. These results were partially offset by rental income received from ourCulver City tenant which did not exist in 2020: straight line rent commencedMay 2020 .
Operating Expense
Operating expense for the quarter endedMarch 31, 2021 decreased by 4%, or$0.1 million , to$2.7 million , due to the ongoing temporary closures of ourLive Theatre business unit. This decrease was offset by increased costs related to our44 Union Square property being included in operating costs and our inability to lower fixed expenses despite declining revenues due to the pandemic conditions.
Depreciation, Amortization, General and Administrative Expense
Depreciation, amortization, general and administrative expense for the quarter endedMarch 31, 2021 increased by 23%, or$0.4 million , to$2.0 million , which is attributable to the commencement of depreciation of our44 Union Square property. ? 49
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LIQUIDITY AND CAPITAL RESOURCES
The COVID-19 outbreak has materially adversely affected the economies (and the cinema exhibition industry in particular) ofthe United States ,Australia, and New Zealand . Outbreaks of COVID-19 caused cinemas and other public assembly venues to close in March of 2020. Major studios have announced the delayed release of major motion pictures into 2021 and beyond or have gone straight to streaming. The delayed releases of major motion pictures has and will push revenues into later quarters, thereby reducing our full year revenues. However, even if such film product is forthcoming, operating revenues may continue to be adversely impacted by ongoing governmental restrictions, social distancing requirements, the adoption and implementation of new sanitization protocols, and potential hesitancy of patrons to return to public indoor venues. In response to uncertainties associated with the outbreak of the COVID-19 pandemic and its impact on our Company's business, Management drew down the available operating borrowing capacity in the first quarter of 2020 and implemented an immediate program to reduce costs and cash outlays. As our cinemas have reopened, a portion of those borrowings have now been repaid. OnMarch 31, 2021 , we paid down$1.3 million on theBank of America revolving credit facility bringing the total to$5.1 million available to be drawn under this facility. OnMay 7, 2021 , we repaid$11.2 million (NZ$16.0 million) to Westpac, which represented a permanent reduction in this facility. In addition, Management undertook a program to monetize certain of our real estate assets. In the first quarter of 2021, these efforts produced net proceeds to our Company of$65.2 million (representing a pre-tax profit of$47.4 million ) and after taxes proceeds to our Company of$37.4 million . The assets monetized were our non-income producing undeveloped land at Manukau inNew Zealand andCoachella inCalifornia . We are currently in contract negotiations with qualified buyers to sell our Auburn Redyard ETC in theSydney area. OnMay 14, 2021 , we entered into a definitive purchase and sale agreement with respect to ourRoyal George Theatre inChicago . While no assurances can be given, we anticipate that both transactions will close during the second quarter of 2021. We have used a portion of the proceeds of the monetization of our Manukau property to retire the construction debt on our44 Union Square property. OnMay 7, 2021 , we closed on a new three-year$55.0 million loan facility withEmerald Creek Capital . Proceeds were immediately drawn, subject to certain customary reserves. The facility bears a variable interest rate of one month LIBOR plus 6.9% with a floor of 7.0% and has two 12-month options to extend, but may be repaid at any time, subject to notice and a minimum interest payment equal to the positive difference between interest paid on the loan through the pre-payment date and one-year's interest. In effect, the loan may be repaid after 12 months without the payment of any premium. Our total outstanding borrowings were$243.0 million onMarch 31, 2021 compared to$285.0 atDecember 31, 2020 . As ofMarch 31, 2021 , we had$40.9 million in cash and cash equivalents compared to$26.8 million atDecember 31, 2020 . Our Company's use of these loan funds is in some ways limited due to limitations on the expatriation of funds fromAustralia and New Zealand tothe United States and limitations on our use of the proceeds from our$55.0 million Bank of America Credit Facility for purposes unrelated to ourU.S. cinema activities. Our bank loans with theBank of America , NAB, and Westpac require that our Company comply with certain covenants. The longer the COVID-19 pandemic and the associated limitations (both legal and practical) on our business exist, the greater the risk that, in the absence of other actions by our Company, we will be unable to continue to comply with these covenants. However, in such an event, our Company expects to be able to obtain an amendment or waiver from its lenders, though no assurances can be given. We believe that our lenders understand that the current situation is not of our making, that we are doing everything that can reasonably be done, and that our relationship with our lenders is good. Prior to the COVID-19 pandemic, our cinema exhibition business plan had been to enhance our current cinemas where it was financially reasonable to do so; develop our specialty cinemas in select markets; expand our F&B offering, and continue on an opportunistic basis, to identify, develop, and acquire cinema properties that allow us to leverage our cinema expertise over a larger operating base. This continues to be our plan once we are able to fully reopen, subject to liquidity constraints. We continue to advance most of our real estate initiatives as these are, generally speaking, still in the planning stage and, as a result, less impacted than projects in their construction phase.44 Union Square received a temporary certificate of occupancy for the core and shell of the building onAugust 31, 2020 and is in the lease-up phase following completion of construction with the exception of minor punch list items. We, fortunately, have only one project in a construction phase - the refurbishment of ourConsolidated Theatre at theKahala Mall inHonolulu . We anticipate that ourConsolidated Theatre at theKahala Mall will reopen for business after construction is completed. We do, however, have contractual commitments to fit-out or refurbish seven cinemas at an estimated cost of approximately$11.8 million , over the next 15 months. 50 -------------------------------------------------------------------------------- Our pre-COVID-19 business plan with respect to the Real Estate segment of our business was to continue the build-out of ourNewmarket Village andAuburn Redyard ETCs inAustralia ; to master-plan the redevelopment of our Courtenay Central site inNew Zealand into an urban entertainment center with a focus on cinema exhibition and F&B; in Manukau/Wiri,New Zealand , to develop in concert with other major landowners, the infrastructure needed to support the construction of income-producing light industrial improvements; to reassess and master-plan our Cinemas 1,2,3 property for redevelopment as a stand-alone 96,000 square foot mixed use property and in the interim to continue to use it as a cinema; and to continue to be sensitive to opportunities to convert our entertainment assets to higher and better uses, or, where appropriate, to dispose of such assets. However, as indicated above, the COVID-19 pandemic forced a reassessment of that plan. During the first quarter of 2021, we sold our Manukau andCoachella non-income producing land assets and reclassified our Auburn Redyard ETC andRoyal George Theatre complex as assets held for sale. We are currently in exclusive negotiations with a qualified buyer with respect to Auburn Redyard and have entered into a definitive purchase and sale agreement with respect to ourRoyal George Theatre . While no assurances can be given, we anticipate that both transactions will close during the second quarter of 2021. Going forward, subject to capital allocation considerations, we will be focusing on completing the lease up of our44 Union Square property inManhattan , the further development of our Newmarket ETC inAustralia and Courtenay Central ETC inNew Zealand , and the redevelopments of our Cinema 1,2,3 property inManhattan and our historic railroad properties inPhiladelphia . The success of our Company is naturally dependent on our ongoing ability to execute these business plans effectively through our available resources (both cash and available borrowing facilities), while still maintaining appropriate levels of liquidity. Prior to the COVID-19 pandemic, our financial obligations arose mainly from capital expenditure needs, working capital requirements, and debt servicing requirements. We managed our liquidity needs by working to generate adequate cash flows from operating activities, to obtain and maintain appropriate financing or extension of maturity dates under reasonable arrangements, and/or to convert non-performing or non-strategic assets into cash as appropriate under the circumstances. During the pandemic, we had to rely on our ability to control costs, to generate revenue from different sources, and to maintain and obtain adequate and reasonable financing, while at the same time reviewing and, where appropriate, converting non-strategic assets into cash, if and as needed. Historically, we have funded our capital expenditures out of operating cash flow. Obviously, with our revenues severely curtailed by the closure and other limitations imposed on our cinema activities, we have needed to look to our lenders for the near term. However, we remain confident in our cinema industry and that it will once again be the primary engine through which we fund our liquidity needs. The impact of the COVID-19 pandemic on our business has reduced our liquidity and our Management, consequently, has postponed, or reprioritized most of our capital expenditures based on assessments of conditions and liquidity requirements. During the remainder of 2021, we anticipate that we will continue to limit our capital expenditures, and as a result, we currently estimate that our cash capital expenditures in both our cinema and real estate segments in 2021 will not exceed$17.2 million . The projects requiring capital expenditures in 2021 will include: (i) with respect to our cinema business, the renovation of existing global cinemas and the construction of new cinemas inAustralia and (ii) with respect to our real estate business, capital for the build out/fit out of third-party tenant spaces. Our Company believes that 2021 capital expenditures will be paid for principally by funds raised by the monetization and refinancing of our assets, cash flow from operations and/or funds available under global credit facilities. Our Company remains focused on all economic factors affecting us as the markets in which we operate appear to be emerging from the worst effects of the COVID-19 pandemic, including, financial, economic, competitive, regulatory, and other factors, many of which are beyond its control. If our Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed our Company's borrowing capacity under its available facilities, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating such planned capital expenditures, selling additional assets, or restructuring debt. For more information about our liquidity, please refer to Note 3 - Impact of COVID-19 Pandemic on Liquidity and Note 11 - Borrowings in the Notes to Consolidated Financial Statements included herein in Part I, Item 1 (Financial Statements) on this report. ? 51
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The changes in cash and cash equivalents for the quarters ended
Three Months Ended
March 31,
(Dollars in thousands) 2021 2020 % Change
Net cash provided by (used in) operating
activities$ (3,774) $ (8,672)
56 %
Net cash provided by (used in) investing
activities 63,906 (9,804)
>100 %
Net cash provided by (used in) financing
activities (45,713) 60,905
(>100) %
Effect of exchange rate changes on cash and
cash equivalents (325) 329
(>100) %
Increase (decrease) in cash and cash
equivalents$ 14,094 $ 42,758 (67) % Operating activities Cash used in operating activities for the quarter endedMarch 31, 2021 decreased by$4.9 million , to$3.8 million driven by a$20.9 million decrease in cash inflows from operating activities, offset by a$25.8 million increase in net changes in operating assets and liabilities resulting from savings from rent abatements and taxes payable. Investing activities Cash provided by investing activities during the quarter endedMarch 31, 2021 increased by$73.7 million , to$63.9 million when compared to the same period in 2020. This increase is primarily attributable to$65.6 million proceeds mainly from the sale of Manukau andCoachella , and an$8.1 million decrease in capital expenditures. Financing activities The$45.7 million net cash used in financing activities during the quarter endedMarch 31, 2021 is related to$42.6 million of loan repayments related to our44 Union Square property and$5.3 million of theCoachella noncontrolling interest distributions, offset by$2.3 million of new borrowings related to Jindalee. ? 52
-------------------------------------------------------------------------------- The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital, and other relevant information addressing our liquidity for the first quarter endedMarch 31, 2021 and preceding four years: As of and for the 3-Months Ended Year Ended December 31 ($ in thousands) March 31, 2021 2020 2019 2018(3) 2017(2)(3) Total Resources (cash and borrowings) Cash and cash equivalents (unrestricted) $ 40,920$ 26,826 $ 12,135 $ 13,127 $ 13,668 Unused borrowing facility 5,100 15,490 73,920 85,886 137,231 Restricted for capital projects(1) - 9,377 13,952 30,318 62,280 Unrestricted capacity 5,100 6,113 59,968 55,568 74,951 Total resources at period end 46,020 42,316 86,055 99,013 150,899 Total unrestricted resources at period end 46,020 32,939 72,103 68,695 88,619 Debt-to-Equity Ratio Total contractual facility$ 248,072 $ 300,449 $ 283,138 $ 252,929 $ 271,732 Total debt (gross of deferred financing costs) 242,972 284,959 209,218 167,043 134,501 Current 2,291 42,299 37,380 30,393 8,109 Non-current 240,681 242,660 171,838 136,650 126,392 Finance lease liabilities 105 118 - - - Total book equity 95,750 81,173 139,616 179,979 181,382 Debt-to-equity ratio 2.54 3.51 1.50 0.93 0.74 Changes in Working Capital Working capital (deficit)(4)$ (12,995) $ (64,140) $ (84,138) $ (56,047) $ (47,294) Current ratio 0.86 0.47 0.24 0.35 0.41 Capital Expenditures (including acquisitions) $ 1,663$ 16,759 $
47,722
(1)This relates to 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). (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)Typically, 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.
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. Before the COVID-19 pandemic, our treasury management has been focused on aggressive cash management using cash balances to reduce debt and minimize interest expense. 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.
Refer to Note 11 - Borrowings for further details on our various borrowing arrangements.
AtMarch 31, 2021 , our consolidated cash and cash equivalents totaled$40.9 million , which included approximately$17.6 million inU.S. operations,$9.2 million in Australian operations, and$14.1 million inNew Zealand operations. Due to the impact of COVID-19, we no longer intend to indefinitely reinvest offshore any earnings derived from our Australian andNew Zealand operations.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
The following table provides information with respect to the maturities and
scheduled principal repayments of our recorded contractual obligations and
certain of our commitments and contingencies, either recorded or off-balance
sheet, as of
(Dollars in thousands) 2021 2022 2023 2024 2025 Thereafter Total Debt(1)$ 1,394 $ 25,070 $ 177,665 $ 296 $ 287 $ 7,794 $ 212,506 Operating leases, including imputed interest 24,946 33,202 32,406 30,531 28,369 143,508 292,962 Finance leases, including imputed interest 40 43 29 - - - 112 Subordinated debt(1) 510 711 747 585 - 27,913 30,466 Pension liability 513 684 684 684 684 1,375 4,624 Estimated interest on debt (2) 6,727 7,538 5,384 1,524 1,472 2,104 24,749 Village East purchase option(3) - - 5,900 -
- - 5,900 Total$ 34,130 $ 67,247 $ 222,815 $ 33,620 $ 30,812 $ 182,694 $ 571,319
(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.
Refer to Note 14 - Commitments and Contingencies for additional information.
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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. Where we are the plaintiffs, we expense all legal fees on an ongoing basis and make no provision for any potential settlement amounts until received. InAustralia , the prevailing party is usually entitled to recover its attorneys' fees, which recoveries typically work out to be approximately 60% of the amounts actually spent where first-class legal counsel is engaged at customary rates. Where we are a plaintiff, we have likewise made no provision for the liability for the defendant's attorneys' fees in the event we are determined not to be the prevailing party. Where we are the defendants, we accrue for probable damages that insurance may not cover as they become known and can be reasonably estimated. In our opinion, any claims and litigation in which we are currently involved are not reasonably likely to have a material adverse effect on our business, results of operations, financial position, or liquidity. It is possible, however, that future results of the operations for any particular quarterly or annual period could be materially affected by the ultimate outcome of the legal proceedings.
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.
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 first quarter 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 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 first quarter ended
?
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FINANCIAL RISK MANAGEMENT
International Business Risks
Our international operations are subject to a variety of risks, including the following:
?Currency Risk: while we report our earnings and net assets inU.S. dollars, substantial portions of our revenue and of our obligations are denominated in either Australian orNew Zealand dollars. The value of these currencies can vary significantly compared to theU.S. dollar and compared to each other. We do not hedge the currency risk, but rather have relied upon the natural hedges that exist as a result of the fact that our film costs are typically fixed as a percentage of the box office, and our local operating costs and obligations are likewise typically denominated in local currencies. However, we do have intercompany debt and our ability to service this debt could be adversely impacted by declines in the relative value of the Australian andNew Zealand dollar compared to theU.S. dollar. Also, our use of local borrowings to mitigate the business risk of currency fluctuations has reduced our flexibility to move cash between jurisdictions. Set forth below is a chart of the exchange ratios between these three currencies since 1996: [[Image Removed: Picture 5]] In recent periods, we have repaid intercompany debt and used the proceeds to fund capital investment inthe United States . Accordingly, our debt levels inAustralia are higher than they would have been if funds had not been returned for such purposes. On a company wide basis, this means that a reduction in the relative strength of theU.S. dollar versus the Australian Dollar and/or theNew Zealand dollar would effectively raise the overall cost of our borrowing and capital and make it more expensive to return funds fromthe United States toAustralia and New Zealand . ?Risk of adverse government regulation: currently, we believe that relations betweenthe United States ,Australia, and New Zealand are good. However, no assurances can be given that these relationships will continue, and thatAustralia and New Zealand will not in the future seek to regulate more highly the business done byU.S. companies in their countries. ?Risk of adverse labor relations: deterioration in labor relations could lead to an increased cost of labor (including future government requirements with respect to pension liabilities, disability insurance and health coverage, and vacations and leave). Our exposure to interest rate risk arises out of our long-term floating-rate borrowings. To manage the risk, we utilize interest rate derivative contracts to convert certain floating-rate borrowings into fixed-rate borrowings. It is our Company's policy to enter into interest rate derivative transactions only to the extent considered necessary to meet its objectives as stated above. Our Company does not enter into these transactions or any other hedging transactions for speculative purposes. 55
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Inflation
We continually monitor inflation and the effects of changing prices. Inflation
increases the cost of goods and services used. Competitive conditions in many of
our markets restrict our ability to recover fully the higher costs of acquired
goods and services through price increases. We attempt to mitigate the impact of
inflation by implementing continuous process improvement solutions to enhance
productivity and efficiency and, as a result, lower costs and operating
expenses. The effects of inflation have not had a material impact on our
operations and the resulting financial position or liquidity. However, we are
monitoring recent macro-economic factors suggesting the possibility of increased
inflation as the economy emerges from the COVID-19 pandemic.
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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 expected timing of the reopening of our cinemas and theatres; our expected operating results, including due to our diverse business structure; our expectations regarding the implementation and success of our new initiatives; our expectations regarding the potential monetization and refinancing of real estate assets, including the timing of any sale ourAuburn /Redyard Entertainment Themed Center andRoyal George Theatre properties; our expectations regarding the future of the cinema exhibition industry, including the strength of movies anticipated for release in the future; our expectations regarding people 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; our expectations regarding the timing of the completions our construction projects, including theConsolidated Theatre at theKahala Mall and the fit-out or refurbishment of certain cinemas; our expectations regarding the commencement of rental income on our office building; our expectations regarding our stock repurchase program; 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 theaters 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 andChicago ;
?the adverse effects of the COVID-19 pandemic 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 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;
?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;
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?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 theaters" and competitive film product
distribution technology, such as, streaming, cable, satellite broadcast, video
on demand platforms, and Blu-ray/DVD rentals and sales;
?the impact of major movies being released directly to one of the multitude 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 payment terms with our landlords;
?disruptions during theater improvements;
?the extent to, and the efficiency with, which we are able to integrate acquisitions of cinema circuits with our existing operations;
?the risk that
?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; and
?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.
?with respect to our real estate development and operation activities:
?the impact of the COVID-19 pandemic may continue to affect many of our tenants at our real estate operations inthe United States ,Australia, and New Zealand , their ability to pay rent, and to stay in business;
?the impact of the COVID-19 pandemic 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 on real estate valuations in major urban
centers, such as
?uncertainty as to governmental responses to COVID-19;
?the potential monetization of certain non-core real estate assets;
?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.
?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 inthe United States :
?our ability to renew, extend, renegotiate or replace our loans that mature in 2022 and beyond;
?our ability to grow our Company and provide value to our stockholders;
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?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 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 theater and ETC closures; ?our ability to generate significant cash flow from operations if our theaters 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. 59
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