Reading International, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Reading International operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. This quarterly report covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Results remained materially affected by COVID-19 closures, capacity restrictions, delayed film releases, rent concessions, and reduced patron attendance.
As of the filing date, 56 of 61 cinemas were open. The Kahala Mall cinema remained closed for renovation, Courtenay Central remained closed for seismic concerns, and certain U.S. cinemas had not yet reopened. Live theaters in the United States remained generally closed.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $21.3 million | $49.2 million | Down 57% |
| Cinema revenue | $18.1 million | $46.3 million | Down 61% |
| Real estate revenue | $3.2 million | $2.9 million | Up 9% |
| Operating income (loss) | $(14.0) million | $(7.0) million | Loss increased |
| Operating margin | (65.6%) | (14.3%) | Down materially |
| Net income (loss) | $22.1 million | $(6.0) million | Improved |
| Net income attributable to RDI | $19.0 million | $(5.9) million | Improved |
| Basic EPS | $0.87 | $(0.27) | Improved |
| Cash flow from operations | $(3.8) million | $(8.7) million | Improved |
| Cash flow from investing | $63.9 million | $(9.8) million | Driven by asset sales |
| Cash flow from financing | $(45.7) million | $60.9 million | Debt repayment and distributions |
| Cash and equivalents | $40.9 million | $26.8 million at Dec. 31, 2020 | Up $14.1 million |
| Total borrowings | $243.0 million | $285.0 million at Dec. 31, 2020 | Down $42.0 million |
| Working capital deficit | $13.0 million | $64.1 million at Dec. 31, 2020 | Improved |
Net income was substantially driven by a $46.5 million gain on asset sales, principally the Manukau, New Zealand and Coachella, California land transactions. Excluding this unusual gain, the company remained loss-making at the operating level and generated negative operating cash flow.
Cinema operating loss was $8.3 million versus a $2.7 million loss in the prior-year quarter. Real estate operating income declined to a $1.4 million loss from $0.2 million of income. Interest expense increased to $4.4 million from $1.8 million.
Material changes versus the prior comparable period
- Cinema revenue declined 61%; U.S. cinema revenue fell 84%, Australia declined 38%, and New Zealand declined 35%. Attendance decreased 88% in the U.S., 52% in Australia, and 47% in New Zealand.
- Revenue was reduced by ongoing closures, social-distancing limits, limited film availability, and studios postponing releases or using streaming and premium video-on-demand channels.
- Operating expenses declined 46% overall, but not enough to offset the revenue decline because occupancy and other fixed costs remained significant.
- The company sold Manukau land for $56.1 million, recognizing a $41.1 million gain after direct costs, and monetized its 50% interest in Coachella land for $11.0 million, recognizing a $6.3 million gain after direct costs.
- The company repaid approximately $40.6 million of Union Square construction debt on March 26, 2021. Debt classified as current declined from $41.5 million at year-end 2020 to $1.6 million at March 31, 2021.
- Negative working capital improved substantially through cost reductions, rent abatements and deferrals, asset sales, and tax-related cash receipts.
- The Australian government provided approximately $2.2 million of wage subsidies during the quarter. The Australian program ended March 27, 2021; no New Zealand subsidies were received during the quarter.
- No impairment charges were recorded for long-lived assets, goodwill, or indefinite-lived intangible assets during Q1 2021.
Liquidity, debt, and cash flow
Management reported $40.9 million of cash and approximately $5.1 million of available capacity under the U.S. Bank of America credit facility at March 31, 2021. Cash balances included approximately $17.6 million in U.S. operations, $9.2 million in Australia, and $14.1 million in New Zealand, and the company noted restrictions on transferring funds among jurisdictions.
Total borrowings were $243.0 million, net of deferred financing costs, and book equity was $95.8 million, producing a debt-to-equity ratio of 2.54. The company was in compliance with its modified loan covenants at March 31, 2021, although covenant waivers and modifications remain important to liquidity.
Management disclosed substantial doubt about the company’s ability to continue as a going concern for at least twelve months after issuance of the financial statements absent implementation of its plans. Management concluded that its plans were probable of implementation and probable of alleviating the substantial doubt. Those plans depend materially on cinema recovery, asset sales, refinancing, lender cooperation, and continued cost control.
Guidance, outlook, risks, and unusual items
- No formal revenue or earnings guidance was provided. Management expects cinema operations to recover as vaccinations progress, restrictions ease, and major films return to theatrical release, but timing and pace remain uncertain.
- Management estimated 2021 cash capital expenditures would not exceed approximately $17.2 million, subject to liquidity and capital availability. The company also has contractual commitments to fit out or refurbish seven cinemas at an estimated cost of approximately $11.8 million over 15 months.
- The company classified Auburn Redyard in Australia, with a carrying value of approximately $28.7 million, and the Royal George Theatre in Chicago, with a carrying value of approximately $1.8 million, as held for sale.
- After quarter-end, the company entered into a definitive agreement to sell Royal George, expected to close in Q2 2021, and remained in exclusive negotiations regarding Auburn Redyard.
- On May 7, 2021, the company closed a new $55.0 million, three-year Union Square loan bearing interest at one-month LIBOR plus 6.9%, subject to a 7.0% floor. It also repaid $11.2 million of Westpac debt and permanently reduced that facility.
- Key risks include renewed COVID-19 closures, attendance and capacity limitations, film release delays or simultaneous streaming releases, continued negative operating cash flow, covenant compliance, refinancing needs, asset-sale execution, high lease obligations, foreign currency movements, interest-rate exposure, and tenant rent relief.
- The filing identifies ongoing California wage-and-hour class and representative actions, although management believes potential liability is not material and no reserve has been established. The Wagner individual complaint was settled.
Investor verification items
- Reconcile the reported $19.0 million attributable profit to the $46.5 million gain on asset sales and assess recurring earnings excluding that item.
- Verify the reopening status, attendance trends, capacity restrictions, and profitability of the remaining closed or underperforming cinemas.
- Confirm completion, proceeds, and debt application for the Auburn Redyard and Royal George asset sales.
- Review the going-concern conclusion, liquidity forecasts, covenant requirements, and the company’s ability to transfer cash between jurisdictions.
- Evaluate the cost and refinancing risk of the new $55.0 million Union Square facility and other variable-rate borrowings.
- Assess the sustainability of rent abatements, government subsidies, cost reductions, and delayed capital expenditures as those temporary measures expire.
- Monitor film release schedules, streaming-window changes, consumer attendance, and the effect of COVID-19 or other public-health restrictions on cinema cash flow.