Business Context and Reporting Period
Reading International, Inc. filed its Form 10-K for the fiscal year ended December 31, 2021. The company operates 63 cinemas with 515 screens in the United States, Australia, and New Zealand, and owns or manages retail, commercial, live-theatre, and development real estate. Its two reporting segments are Cinema Exhibition and Real Estate.
Although the request identifies “2021 Q4,” this filing is an annual report. It separately reports fourth-quarter results, including the first quarter of positive cinema segment operating results since the beginning of the COVID-19 pandemic.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $139.1 million | $77.9 million | +78.6% |
| Cinema revenue | $126.8 million | $67.0 million | +89% |
| Real estate revenue | $12.2 million | $10.8 million | +13% |
| Operating loss | $(41.8) million | $(61.3) million | Improved by $19.5 million |
| Net income attributable to RDI | $31.9 million | $(65.2) million | Improved by $97.1 million |
| Basic diluted earnings per share | $1.46 / $1.42 | $(3.00) / $(3.00) | Returned to profitability |
| Net cash used in operating activities | $(13.5) million | $(30.2) million | Improved by $16.7 million |
| Capital expenditures | $14.4 million | $16.8 million | Down $2.3 million |
Reported net income was substantially driven by $92.2 million of gains on asset sales. Operating profitability remained negative: the consolidated operating margin was approximately negative 30%, while net income margin was approximately 25%, largely reflecting those non-operating gains.
- Cinema segment operating loss narrowed to $18.6 million from $45.1 million. Fourth-quarter cinema segment operating income was $2.0 million, compared with an $11.7 million loss in the fourth quarter of 2020.
- Real estate segment operating loss increased to $5.4 million from $2.5 million, primarily because of higher costs and depreciation associated with 44 Union Square and lower Australian rental revenue after asset sales.
- Cash and cash equivalents were $83.3 million at year-end, compared with $26.8 million in 2020; restricted cash was $5.3 million.
- Net cash provided by investing activities was $129.6 million, primarily from real estate monetizations. Net cash used in financing activities was $50.3 million.
- Gross debt was $236.9 million at year-end, down from $285.0 million in 2020 on a comparable gross basis disclosed by management. Net debt was reported by management at $236.9 million, reflecting its stated debt measure.
- Total book equity was $105.1 million, and the debt-to-equity ratio was 2.26 versus 3.51 in 2020. Working capital remained negative at $(6.7) million, with a current ratio of 0.94.
- Operating lease liabilities totaled $247.1 million, in addition to recorded debt. Future contractual obligations totaled approximately $590.7 million, including debt, leases, pension obligations, the Village East purchase option, and estimated interest.
Material Changes Versus the Prior Comparable Period
- Cinemas operated for more days in 2021 as government restrictions eased and film releases improved. U.S. cinema revenue more than doubled to $59.9 million; Australia increased 70% to $55.3 million; and New Zealand increased 64% to $11.6 million.
- The company monetized several real estate assets, generating approximately $139.4 million of net proceeds according to management and $145.2 million of gross cash proceeds in the statement of cash flows. Major transactions included Auburn/Redyard, Manukau land, Coachella land, Royal George Theatre, and Invercargill.
- Aggregate net gains on asset sales were $92.2 million, substantially reversing the prior-year net loss.
- The company refinanced 44 Union Square with a new $55.0 million mortgage facility, repaid or reduced several Australian, New Zealand, and U.S. facilities, and converted the Bank of America credit facility into a term loan.
- General and administrative expense increased to $25.1 million from $17.0 million, including executive bonuses and a $4.0 million accrual for California wage-and-hour litigation.
- Interest expense increased to $13.7 million from $9.4 million, partly because interest capitalization ceased after completion of the 44 Union Square development.
- No impairment loss was recorded for long-lived assets or goodwill in 2021, although COVID-19-related impairment testing involved significant forecasting judgment.
Outlook, Management Commentary, Risks and Unusual Items
Management expects the cinema industry to continue recovering in 2022 and 2023 and believes current cash, expected operating improvement, and completed financing and asset-sale actions provide sufficient resources to meet obligations for at least one year after the filing date. The company does not provide formal revenue or earnings guidance.
- Management planned to add two Australian cinemas totaling 13 screens by the end of 2022 and continued investment in luxury seating, premium formats, expanded food and beverage offerings, digital ticketing, contactless services, and Angelika Anywhere streaming.
- A long-term lease for the lower level, ground floor, and second floor of 44 Union Square was signed in January 2022; the remaining office space remains subject to leasing risk.
- COVID-19, future variants, attendance below pre-pandemic levels, shortened theatrical windows, direct-to-streaming releases, and consumer migration to home entertainment remain material risks.
- The company has high fixed costs, substantial lease obligations, debt maturities concentrated in 2023 and 2024, and no unused unrestricted corporate credit capacity at December 31, 2021.
- Debt covenant modifications and waivers were obtained from Bank of America, National Australia Bank, and Westpac. The company stated it was in compliance with its covenants as modified.
- A 1% increase in variable interest rates was estimated to increase annual interest expense by approximately $2.7 million in the risk-factor discussion; another sensitivity analysis estimated approximately $1.6 million of 2021 interest expense exposure.
- The company accrued the $4.0 million proposed settlement of California employment litigation, subject to final documentation and court approval. It also faces ongoing Cotter family trust and control litigation that could affect voting control and management stability.
- Courtenay Central in Wellington remains substantially closed because of seismic concerns, and the company has no fixed redevelopment timetable.
- Foreign currency movements, labor shortages, inflation, supply-chain disruption, natural disasters, environmental claims related to legacy railroad operations, and cybersecurity incidents could materially affect results.
- Grant Thornton issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management reported effective internal control as of December 31, 2021.
Important Facts for Investors to Verify
- Separate sustainable operating performance from the $92.2 million of asset-sale gains underlying 2021 net income.
- Verify cinema attendance, ticket pricing, food and beverage spend per patron, and segment cash flow as operations normalize.
- Review the timing and terms of debt maturities, covenant requirements, refinancing options, and the March 2023 and later maturity concentrations.
- Assess whether $83.3 million of cash and expected operating recovery are sufficient given negative operating cash flow, lease obligations, and limited unused borrowing capacity.
- Monitor leasing progress and required capital spending at 44 Union Square and the redevelopment outlook for Courtenay Central and other properties.
- Track the proposed $4.0 million employment settlement and the unresolved Cotter trust proceedings, including any potential change in control.
- Evaluate the sensitivity of asset valuations and impairment conclusions to renewed pandemic restrictions, lower attendance, streaming competition, interest rates, and foreign exchange movements.