READING INTERNATIONAL INC annual report, FY2023

Business context and reporting period

Reading International, Inc. filed its Form 10-K for the fiscal year ended December 31, 2023. The company operates 61 cinemas with 491 screens across the United States, Australia, and New Zealand, and owns or leases retail, commercial, development, and live-theatre real estate. Its two reportable segments are Cinema Exhibition and Real Estate.

Although the request references 2023 Q4, this filing is an annual report. Fourth-quarter information is disclosed separately in the MD&A, but the principal financial discussion covers the full year.

Financial results and key metrics

Metric	2023	2022	Change
Total revenue	$222.7 million	$203.1 million	+9.7%
Cinema revenue	$207.6 million	$191.3 million	+9%
Real estate revenue	$15.1 million	$11.8 million	+28%
Operating loss	$12.0 million	$28.5 million	Improved by $16.5 million
Net loss attributable to RDI	$30.7 million	$36.2 million	Improved by $5.5 million
Basic loss per share	$1.38	$1.64	Improved
Cash used in operating activities	$9.7 million	$26.4 million	Improved by $16.6 million

Approximate consolidated operating margin was negative 5.4%, compared with negative 14.0% in 2022. Approximate net margin attributable to RDI was negative 13.8%, compared with negative 17.8%.
Cinema Exhibition generated $124,000 of segment operating income, compared with an $11.7 million loss in 2022. U.S. cinema operating losses improved to $5.8 million from $17.2 million; Australia generated $5.3 million and New Zealand generated $671,000.
Real Estate segment operating income increased to $3.8 million from $506,000, primarily because 44 Union Square began contributing rental income from Petco.
Interest expense increased to $19.4 million from $14.4 million, reflecting higher interest rates. Management estimates that rate increases added approximately $1.6 million to 2023 interest expense relative to the prior year and $6.6 million in 2022.
Net loss included a $562,000 gain on asset sales. No long-lived-asset impairment was recorded in 2023, compared with $1.5 million in 2022.
Capital expenditures were $4.7 million, down from $9.8 million in 2022.

Balance sheet, debt and liquidity

Cash and cash equivalents were $12.9 million at December 31, 2023, down from $29.9 million. Restricted cash was $2.5 million.
Total debt was $210.3 million gross, or $208.8 million net of deferred financing costs, compared with $215.6 million gross at December 31, 2022.
Debt-to-equity increased materially to 6.37x from 3.41x because stockholders’ equity declined to $33.0 million from $63.3 million.
Working capital deficit was $88.4 million, compared with $74.2 million in 2022. The current ratio was 0.30.
The company reported no unrestricted unused corporate credit capacity at year-end. The $7.9 million of unused borrowing facility was restricted for capital projects.
Approximately $82.5 million of principal debt payments were scheduled for 2024 and $92.1 million for 2025. Management separately identified approximately $174.6 million of current borrowings maturing over the following 24 months.
Deferred rent obligations totaled approximately $10 million at year-end. Contractual obligations also included $261.9 million of operating lease payments, including imputed interest.
Cash used in investing activities was $2.7 million, while cash used in financing activities was $6.7 million. The company received $4.1 million of new borrowings and repaid $9.7 million of long-term debt.

Material changes versus the prior comparable period

Revenue increased primarily because of a stronger film slate and higher attendance, especially in the United States. Films cited by management included Barbie, Oppenheimer, The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, and Spider-Man: Across the Spider-Verse.
U.S. cinema revenue increased 17% to $113.8 million. Australia was broadly flat at $80.0 million, while New Zealand declined 4% to $13.8 million.
Fourth-quarter cinema revenue declined 4% to $41.9 million, and the cinema segment recorded a $4.1 million operating loss, although this was an improvement from a $5.8 million loss in the fourth quarter of 2022.
Operating performance benefited from reduced depreciation, amortization, general and administrative expense, the absence of the 2022 impairment charge, cinema closures, and delayed capital spending.
General and administrative expense declined to $15.2 million from $16.2 million, while consolidated depreciation and amortization declined to $18.4 million from $20.9 million.
The company opened new cinemas in Busselton and South City Square in Australia, while closing several underperforming locations in the United States and New Zealand.
Petco opened its 44 Union Square flagship location on June 1, 2023, and the company began recognizing rental income from the property.
During 2023, the company sold its Maitland, Australia property for net proceeds of approximately $1.8 million and recognized an $800,000 gain. In February 2024, it sold the Culver City office building for $10.0 million, below its carrying value, and expects to recognize an approximately $700,000 loss in 2024 after debt repayment and transaction costs.

Outlook, management commentary, risks and unusual items

Management expects the 2023 Hollywood strikes to continue affecting film availability and cinema attendance during at least the first half of 2024, with certain releases pushed into 2025. Management remains optimistic that the impact will be temporary, citing audience response to releases such as Dune: Part Two and Kung Fu Panda 4 and an anticipated stronger film slate later in 2024 and in 2025. No formal quantitative revenue or earnings guidance was provided.

Management expects additional cash may be required through 2025 while film releases normalize, deferred rents are repaid, and debt is refinanced or reduced.
The company’s liquidity plan includes refinancing and extending loans, obtaining covenant waivers, preserving cash, limiting non-essential capital expenditures, negotiating landlord concessions, and monetizing non-core real estate.
Management concluded that its plans were probable of implementation and alleviated substantial doubt regarding going-concern status. This conclusion depends on refinancing, improved operating results, and potential additional asset sales.
Subsequent to year-end, the Bank of America facility was extended to August 18, 2025; the Santander theatre loan was extended to June 1, 2024 while refinancing is pursued; and management obtained an indicative term sheet to extend and increase the NAB facility through July 31, 2026.
Courtenay Central in Wellington remains substantially closed because of seismic concerns and is planned for redevelopment. The Minetta Lane Theatre license with Audible had expired while renewal discussions continued.
Key risks include refinancing and covenant compliance, variable interest rates, negative working capital, high fixed rent and labor costs, film supply and release-date delays, competition from streaming and larger exhibitors, foreign exchange movements, seismic and other natural-disaster exposure, real estate leasing and development risk, cybersecurity, and legacy environmental or asbestos claims.
The company is controlled by the Cotter family; Margaret Cotter had voting control over approximately 69% of the outstanding Class B voting stock as of the filing disclosures. Class A common stock is non-voting.
The company reported no material cybersecurity incident and no material contingent litigation liability based on information known at the filing date. Internal control over financial reporting was assessed as effective, and the auditor reported no critical audit matters.

Most important facts for investors to verify

Whether the company can refinance or otherwise address approximately $174.6 million of debt maturing within 24 months, including the status of the Santander, NAB, Westpac, Union Square, and other facilities.
Whether cinema attendance and cash flow improve as the post-strike film slate normalizes, particularly during the first half of 2024.
The amount, timing, and valuation of additional real estate sales required to support liquidity, and the effect of any sales on future earnings and operating capacity.
Repayment terms and timing for approximately $10 million of deferred rent and other landlord obligations.
The assumptions supporting the going-concern conclusion, including refinancing availability, forecast attendance, film releases, asset valuations, and covenant waivers.
The redevelopment timeline, funding requirements, and seismic remediation status for Courtenay Central.
The occupancy and lease-up progress of the remaining space at 44 Union Square and the status of the Audible license for Minetta Lane Theatre.