Reading International, Inc. 2020 Form 10-K Summary
Business context and reporting period
Reading International, Inc. operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. At December 31, 2020, the Company operated 61 cinemas with 504 screens and owned or operated retail, commercial, live theatre, development, and land assets. This filing covers the fiscal year ended December 31, 2020; fourth-quarter figures are included where disclosed.
COVID-19 materially disrupted operations. All cinemas and U.S. live theatres initially closed in March 2020. By the filing date, 86% of the global cinema circuit had reopened, subject to capacity restrictions, local lockdowns, enhanced cleaning costs, and limited film availability.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $77.9 million | $276.8 million | Down 71.9% |
| Cinema revenue | $67.0 million | $262.2 million | Down 74% |
| Real estate revenue | $10.8 million | $14.6 million | Down 26% |
| Operating income (loss) | $(61.3) million | $9.1 million | Turned to loss |
| Net income (loss) | $(65.9) million | $(26.5) million | Loss increased |
| Net loss attributable to RDI shareholders | $(65.2) million | $(26.4) million | Loss increased |
| Basic loss per share | $(3.00) | $(1.17) | Unfavorable |
| Cash flow from operating activities | $(30.2) million | $24.6 million | Turned negative |
Reported operating margin was approximately negative 78.7%, compared with positive 3.3% in 2019. Net margin was approximately negative 84.6%. Cinema exhibition produced a $45.1 million operating loss versus $23.3 million of operating income in 2019. Real estate produced a $2.5 million operating loss versus $5.1 million of operating income.
Fourth-quarter 2020 revenue was $15.0 million, compared with $68.9 million in the fourth quarter of 2019. Net loss attributable to RDI shareholders was $17.4 million, or $0.80 per share, compared with a $27.5 million loss, or $0.99 per share, in the prior-year quarter.
At December 31, 2020, cash and cash equivalents were $26.8 million, including $7.7 million in the U.S., $6.3 million in Australia, and $12.8 million in New Zealand. Total borrowings were $285.0 million gross, versus $209.2 million at December 31, 2019. Book equity was $81.2 million, producing a debt-to-equity ratio of 3.51 versus 1.50 in 2019. Working capital was negative $64.1 million, and the current ratio was 0.47.
Unused unrestricted corporate credit capacity was $6.1 million at year-end. Capital expenditures were $16.8 million in 2020, compared with $47.7 million in 2019. The Company expects 2021 cash capital expenditures not to exceed $25.5 million, subject to liquidity and operating conditions.
Material changes versus the prior comparable period
- Cinema revenue fell 74% because of mandated closures, reduced seating capacity, customer reluctance to attend indoor venues, and major studios postponing releases or moving films to streaming and premium video-on-demand platforms.
- U.S. cinema revenue declined 81%, Australian cinema revenue declined 65%, and New Zealand cinema revenue declined 66%.
- Real estate revenue declined 26% on a consolidated basis, primarily because U.S. live theatres were closed and tenants received rent abatements or deferrals.
- Interest expense increased 18% to $9.4 million as borrowings increased and interest capitalization on 44 Union Square ended.
- General and administrative expense declined 32% to $12.8 million due to payroll reductions, reduced travel, lower professional fees, and other cost controls.
- The Company recorded a $5.0 million income tax benefit, compared with $28.8 million of tax expense in 2019, reflecting the pretax loss and CARES Act benefits, partly offset by a $13.1 million increase in the deferred-tax valuation allowance.
- The Company received approximately $10.9 million of Australian and New Zealand wage subsidies, presented as reductions of wage and salary expense.
- Investment and development property declined to $11.6 million from $114.0 million, primarily reflecting the classification of landholdings as held for sale.
Guidance, outlook, risks, and unusual items
Management expects cinema demand to recover as vaccines are distributed, restrictions are lifted, and film releases normalize, but it provides no assurance regarding the timing or extent of recovery. Management plans to emphasize premium cinema amenities, expanded food and beverage offerings, digital ticketing, contactless operations, and the Angelika Anywhere streaming service.
Management stated that, absent its plans, liquidity would be insufficient to meet obligations as they become due and that substantial doubt existed regarding the Company’s ability to continue as a going concern for at least twelve months after issuance of the financial statements. Management concluded that the substantial doubt was alleviated by probable plans to refinance 44 Union Square and monetize additional real estate assets. These plans remain dependent on financing availability, asset-sale execution, property leasing, cinema reopening, film releases, and consumer demand.
- On March 4, 2021, the Company sold its Manukau, New Zealand land for NZ$77.2 million, or approximately US$56.1 million, generating a reported gain after costs of approximately US$41.0 million over book value.
- On March 5, 2021, Coachella land was sold for $11.0 million; the Company’s share of proceeds was approximately $5.5 million and the reported gain after costs was approximately $6.3 million over book value.
- On March 26, 2021, the Company repaid the $40.6 million 44 Union Square construction loan and is pursuing refinancing, targeted for the second quarter of 2021.
- Auburn Redyard and the Royal George Theatre were marketed for sale after year-end. Management expected sales around the second quarter of 2021, but no assurance was provided.
- Major debt facilities were amended or waived to modify covenant testing. The Company reported compliance with covenants as modified at December 31, 2020.
- Variable-rate debt creates interest-rate exposure; a 1% increase in rates was estimated to increase annual interest expense by approximately $2.7 million based on debt outstanding at year-end.
- Key risks include renewed COVID-19 closures, delayed or direct-to-streaming film releases, high fixed lease and debt obligations, refinancing and covenant compliance, real estate leasing and valuation, foreign exchange, litigation, natural disasters, and the uncertain future control of the Company due to Cotter family trust litigation.
- The Company recorded a $217,000 impairment charge on certain long-lived assets and no goodwill impairment. The filing also includes a prior-period correction for immaterial sales-tax errors that reduced 2019 revenue by $215,000 in aggregate and did not affect 2020 results.
Most important facts for investors to verify
- Whether cinema attendance, film supply, capacity restrictions, and operating margins recover sufficiently during 2021 and beyond.
- Completion, timing, terms, and net proceeds of the 44 Union Square refinancing and proposed Auburn Redyard and Royal George sales.
- Compliance with amended debt covenants and the Company’s ability to refinance or repay approximately $42.3 million of scheduled principal obligations in 2021 and $180.8 million in 2023.
- Actual unrestricted liquidity after considering cash held in foreign subsidiaries, borrowing restrictions, lease obligations, and required debt service.
- The sustainability of landlord rent abatements, government wage subsidies, and other temporary COVID-19 support.
- Leasing progress at 44 Union Square and the effect of rent abatements, tenant defaults, and the Courtenay Central seismic closure on real estate cash flow.
- The resolution and potential business impact of Cotter family control litigation and pending employment-related class and representative actions.
- Whether the Company’s going-concern plans are achieved as projected; the filing’s liquidity assessment relies on events and conditions substantially outside management’s control.