Reading International, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2021. Reading operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand, including 62 cinemas with 510 screens. Results remained significantly affected by COVID-19 restrictions, cinema closures, reduced attendance, film-release delays, and tenant relief.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $36.0 million | $3.4 million | $57.3 million | $52.7 million |
| Operating loss | $(12.5) million | $(22.2) million | $(26.5) million | $(29.2) million |
| Net income attributable to RDI shareholders | $22.7 million | $(22.7) million | $41.7 million | $(28.6) million |
| Basic EPS | $1.04 | $(1.04) | $1.91 | $(1.31) |
| Net cash from operating activities | Not separately presented | $(6.0) million | $(23.1) million |
- Cinema revenue was $32.7 million in Q2 and $50.8 million for the six months, increasing more than 100% and 7%, respectively, versus the comparable periods. Cinema operating losses narrowed to $7.3 million in Q2 and $15.6 million for the six months.
- Real estate revenue was $3.4 million in Q2, up 50%, but $6.8 million for the six months, down 2%. The real estate segment reported operating losses of $1.1 million in Q2 and $2.4 million for the six months.
- Reported profitability was driven primarily by $43.2 million of Q2 and $89.8 million of six-month gains on asset sales. Approximate consolidated operating margins were negative 34.8% for Q2 and negative 46.2% for the six months; net margins were elevated by the disposal gains.
- Cash and cash equivalents increased to $111.8 million at June 30, 2021, from $26.8 million at December 31, 2020. Cash included approximately $15.5 million in the U.S., $65.0 million in Australia, and $31.3 million in New Zealand.
- Investing activities provided $130.2 million, primarily from $141.4 million of asset-sale proceeds. Financing activities used $36.8 million, including debt repayments.
- Total borrowings were $252.7 million gross, or $249.3 million net of deferred financing costs, versus $285.0 million gross at year-end 2020. Total stockholders’ equity was $117.2 million, producing a reported debt-to-equity ratio of 2.16.
- Working capital was positive at $11.3 million, compared with a $(64.1) million deficit at December 31, 2020. Unused borrowing facilities totaled $22.0 million, including $10.0 million of unrestricted capacity.
Material changes versus the prior comparable period
- Most cinemas were operating during Q2 2021 versus widespread closures in Q2 2020. As of the report date, 45 of 62 cinemas were open: 20 of 24 in the U.S., 14 of 26 in Australia, and 11 of 12 in New Zealand; Australian closures subsequently increased because of Delta-variant lockdowns.
- Reading sold Manukau land and Coachella land in Q1 2021 and Auburn/Redyard in Australia and Royal George Theatre in Chicago in Q2 2021. These transactions generated approximately $136.1 million of net cash inflows and substantially contributed to reported earnings.
- The company refinanced 44 Union Square with a new $55.0 million facility, of which $43.0 million was drawn, replacing the prior construction financing. The new facility bears a variable rate with a 7.0% floor.
- Debt repayments included approximately $40.6 million on the former Union Square construction loan, $15.7 million to NAB, $11.2 million to Westpac, and $6.2 million to Bank of America.
- A $4.0 million settlement was reached in California employment litigation, subject to final documentation and court approval, and was accrued as a Q2 cinema administrative expense.
Outlook, management commentary, risks, and contingencies
- Management expects cinema recovery to continue during 2021 and into 2022, supported by vaccine rollouts and anticipated film releases, but provided no formal numerical revenue or earnings guidance.
- Management stated that the asset monetizations and refinancing alleviated the substantial doubt regarding going concern identified in Q3 2020. Management concluded that resources were sufficient to meet obligations for at least one year after issuance of the report, although forecasts remain highly uncertain.
- COVID-19, Delta and other variants remain the principal risks. Further government restrictions, cinema closures, attendance limitations, consumer reluctance, film delays, streaming competition, and tenant rent relief could materially reduce revenue and cash flow.
- The company is subject to modified or waived lender covenant testing for certain facilities and must monitor covenant compliance as testing resumes. Cash availability is also constrained by limitations on transferring funds from Australia and New Zealand to the U.S.
- Two landlords had filed eviction proceedings involving cinemas that remained open; management expected mutually acceptable resolutions but provided no assurance.
- 44 Union Square is substantially complete and in the leasing phase, but no assurance was given that space will be leased on acceptable terms or within the near term. Courtenay Central remains affected by seismic issues and redevelopment timing is uncertain.
- No impairment charges were recorded for long-lived assets, goodwill, or indefinite-lived intangible assets in Q2 or the six months, but future impairments remain sensitive to actual recovery versus management forecasts.
- Foreign-currency translation reduced accumulated other comprehensive income by $4.4 million in the first six months. A 1% change in short-term interest rates would have affected quarterly interest expense by approximately $0.4 million.
Most important facts for investors to verify
- Whether cinema attendance and operating margins recover sustainably without recurring asset sales or government support.
- The timing and impact of further COVID-19 restrictions, particularly in Australia and New Zealand.
- Compliance with debt covenants as waived testing periods expire, along with refinancing needs beginning in 2022 and thereafter.
- Progress leasing 44 Union Square and the property’s ability to generate sufficient cash flow relative to its debt and carrying costs.
- Final court approval and payment timing for the $4.0 million California employment settlement.
- The geographic availability of cash and the practical ability to transfer funds among jurisdictions.
- The company’s future capital requirements for cinema openings, renovations, tenant fit-outs, and Courtenay Central redevelopment.