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READING INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2020
The information in this Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K" or “2020 Annual Report”) contains certain forward-looking statements, including statements related to trends in the Company's business. The Company's actual results may differ materially from the results discussed in the “Cautionary Statement Regarding Forward-Looking Statements”. Factors that might cause such a difference include those discussed in "Item 1 – Our Business," "Item 1A – Risk Factors," and "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this 2020 Form 10-K.
Item 1 – Our Business
Reading International, Inc. (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, our “Company,” “Reading,” “we,” “us,” or “our”) was incorporated in 1999 incident to our reincorporation in the State of Nevada. Our class A non-voting common stock (“Class A Stock”) and class B voting common stock (“Class B Stock”) are listed for trading on the NASDAQ Capital Market (Nasdaq-CM) under the symbols RDI and RDIB, respectively. Our Corporate Headquarters is located in the “Silicon Beach” area of Los Angeles County, at 5995 Sepulveda Blvd, Suite 300, Culver City, California, United States 90230.
Our corporate website address is www.ReadingRDI.com. We provide, free of charge on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the Securities and Exchange Commission (the “SEC”) (www.sec.gov). The contents of our Company website are not incorporated into this report. Our corporate governance charters for our Audit and Conflicts Committee and Compensation and Stock Options Committee are available on our website.
Synergistic Diversification and Branding
We are a diversified company focused on the development, ownership and operation of entertainment and real property assets in three jurisdictions: (i) United States (“U.S.”), (ii) Australia, and (iii) New Zealand. We group our businesses in two operating segments:
Theatrical Motion Picture Exhibition (“Cinema Exhibition”), through our 61 cinemas.
Real Estate, including real estate development and the rental or licensing of retail, commercial and live theatre assets comprised, as of the date of this Report, of approximately 10,308,000 square feet of land and approximately 824,000 square feet of net rentable area.
COVID-19 Impact, Company Response and Change in Business Strategy
Like many other companies operating in the outside-the-home segment of the entertainment industry, our results of operations for 2020 were materially adversely impacted by the COVID-19 pandemic. Due to COVID-19, our global cinemas were either (i) ordered to close by government order or (ii) if permitted to operate, suffered from reduced seating capacities and a lack of quality movies as the major studios and smaller film companies either postponed their movies to dates beyond 2020 or moved their movies to the home video market, streaming, or premium video on demand (“PVOD”) platforms. However, with respect to our Company, the adverse impacts of COVID-19 were somewhat buffered and mitigated by our “two business/three country” business strategy: cinemas and real estate in the U.S., Australia and New Zealand. While this strategy has benefited the Company for more than twenty years, it truly proved its worth in 2020 and during the first quarter of 2021.
We have been able to maintain our core assets and keep our key personnel in place as we reopen the majority of our cinemas and for when we reopen our live theatres to the public, which is currently estimated to be in the Fall of 2021. Generally speaking, our lenders and landlords continue to work with us, and we have not lost any of our cinemas or other assets to default. Our relationships with our film suppliers continue to be strong.
We have now monetized most of our raw land holdings. We sold our land in Manukau, New Zealand for $56.1 million, a $41.0 million gain on sale after costs to sell over its book value of $13.5 million. We sold our interest in our land in Coachella, California for $11.0 million, a $6.3 million gain on sale after costs to sell over its book value of $4.4 million. And, we are pursuing the monetization of other assets. Currently listed for sale are our Auburn Redyard property in Sydney, New South Wales Australia and our Royal George Theatre in Chicago, Illinois. We anticipate leasing back our Reading Cinema at Auburn Redyard.
Subject to capital availability and assuming a return to normal, we will once again put emphasis on developing and enhancing our real estate holdings, such as our Courtenay Central, Townsville and Newmarket ETCs, our Cinemas 1,2,3 and our Philadelphia Viaduct properties.
Australia and New Zealand weathered the COVID-19 pandemic better than the U.S. Consequently, we were able to reopen the majority of our cinemas in Australia and New Zealand in June 2020. While all of our cinemas that were able to open during this period suffered from a lack of movies from the major Hollywood studios, we were able to attract audiences in Australia and New Zealand by featuring movies produced locally in those markets and from Asia and Europe. Also, unlike the situation in the U.S., the approach to assistance to business was focused on the preservation of jobs in Australia and New Zealand and did not discriminate against publicly held cinema companies. Though we provided occupancy assistance to many of our third-party tenants, the results of our real estate operations in Australia and New Zealand remained relatively stable. On March 28, 2021, Queensland, Australia announced a 3-day snap lockdown, so two of our sites have been temporarily closed.
COVID-19 Impact on our Cinema Business
In March 2020, as a result of the COVID-19 pandemic, all of our cinemas in the United States, Australia, and New Zealand were temporarily closed by government mandate, ultimately causing a halt to our cinema income. While our cinema operations in Australia and New Zealand were less impacted by closures, with the first of our New Zealand cinemas reopening on May 27, 2020, approximately 65 days after the initial closure, and the first of our Australia cinemas reopening on June 10, approximately 80 days after the initial closure, these cinemas were later closed and reopened a number of times throughout the year as new outbreaks or stay-at-home orders were put in place. Due to government mandates, our Company was not able to reopen any of its U.S. cinema locations until August 21, 2020, approximately 158 days from the initial COVID-19 pandemic closure. However, even in those jurisdictions in which we were permitted to operate, we were (i) subject to density restrictions (which reduced the number of patrons allowed into our cinema auditoriums) and (ii) negatively impacted by decisions of the major Hollywood studios to either postpone the release of their movies to dates beyond 2020 or, as opposed to offering an exclusive theatrical window, move their movies directly or simultaneously to home video or streaming platforms. We were also adversely impacted by the increased costs associated with the enhanced cleaning protocols adopted to combat the COVID-19 virus.
As of the date of this Report, 86% of our global cinema circuit had reopened: 79% of our cinemas in the United States, 92% of our cinemas in Australia and 100% of our cinemas in New Zealand (apart from our Reading Cinemas at Courtenay Central, which remains temporarily closed due to seismic concerns).
However, even in those jurisdictions in which we have now been permitted to operate, we are still subject to some capacity restrictions, Hollywood studio release decisions, and additional protection costs.
Since reopening our cinemas, we are encouraged by our growing cinema admissions in Australia, New Zealand and Hawaii, and we are pleased with the Food & Beverage per caps currently being achieved in those markets. Also, at the time the COVID-19 pandemic hit, we were already taking steps in our circuit to deal with competition from streaming by improving the quality of our cinema offering (luxury recliner seating, presentation screens and premium sound) and improving the quality and range of our Food & Beverage programs.
With the development of and distribution of a variety of vaccines, and a government focus on reopening the social aspects of our lives, we anticipate that the impact of the COVID-19 pandemic on our results of operation will be a passing event, and that we will ultimately return to results that resemble those of the pre-pandemic era.
COVID-19 Impact on our Real Estate Business
The majority of our tenants in our Australia and all of our tenants in our New Zealand real estate businesses are currently open for trading. We have, to varying degrees, and as required by regulation, supported certain tenants with rent abatements and deferrals, and may continue to do so until we believe that such tenants are in a position to fully perform their obligations despite COVID-19 impacts.
In the U.S., currently the majority of our real estate income is generated by rental revenue from our live theatres which are licensed to third party producers. While these venues have been closed to public performances, we negotiated payment arrangements with certain producers, and generated limited income from these assets.
During the COVID-19 pandemic we substantially completed construction of our 44 Union Square redevelopment project in Manhattan and obtained and have subsequently, maintained a core and shell temporary certificate of occupancy. The property is now ready for tenant occupancy, however, COVID-19 has severely constrained leasing activity in Manhattan. Unfortunately, this disruption to the leasing market impacted our ability to renew our 44 Union Square construction loan or to obtain a new loan on acceptable terms. As a result, we elected to refinance on a short-term bridge basis using internally generated funds through a New Zealand affiliate. We are currently working on a refinancing of the property and, while no assurances can be given, based on current facts and circumstances, we are optimistic that the refinancing, which will free up substantial capital, can be finalized in the second quarter of 2021.
Our Strategic approach to COVID-19 pandemic related Issues
In response to the COVID-19 pandemic, we took a number of significant steps to preserve our liquidity and we modified our business strategy to ensure our long-term viability in a way that would not have a dilutive impact on our stockholders or overleverage our Company. These actions, included, without limitation, the following:
To address the venue shutdowns in the U.S., we terminated most of our hourly U.S. cinema and live theatre level staff. We regret being forced into this position, but we were not eligible for Paycheck Protection Program (“PPP”) funding.
In Australia and New Zealand, we were able to keep our cinema level staff substantially in place, due to governmental assistance provided to our employees for which we did qualify (i.e. JobKeeper Payment program in Australia and the Wage Subsidy Scheme in New Zealand).
Across our global cinema circuit, in 2020 we negotiated abatement and/or deferral arrangements with substantially all of our cinema landlords. During the first quarter of 2021, and in light of our continuing liquidity challenges, and in order to establish our long-term viability, we have continued to negotiate with our landlords to reach accommodations to abate or defer a substantial portion of our rent obligations.
We suspended non-essential operating expenditures.
Where possible, we reduced utilities and essential operating expenditures to minimum levels necessary while our venues were closed or operating on a limited basis.
We terminated or deferred all non-essential capital expenditures to minimum levels.
We introduced an improved cash management process, with enhanced Treasury funding approvals.
We entered discussions with our lenders in the U.S., Australia and New Zealand and obtained waivers of certain financial tests and/or suspensions of various financial covenants.
We upgraded our cinema air filtration systems, installed partitions, and equipped our employees with personal protection equipment. And, we have adopted enhanced cleaning protocols.
We upgraded our mobile platforms to allow our cinema guests to (i) reserve and buy tickets in a way that automatically creates social distancing and (ii) in the U.S., order Food & Beverage online.
As discussed in greater detail below, we monetized our principal non-income producing raw land holdings and have listed for sale certain of our operating assets.
From a corporate G&A perspective, we:
Implemented measures to reduce corporate-level employment costs, including (i) reducing the salaries of our CEO and Executive Vice President – Real Estate Management and Development – NYC, (ii) deferring Company 401(k) matching contributions, (iii) eliminating cash bonuses for senior management for 2019 and 2020, and (iv) eliminating certain corporate-level positions to reduce our overall G&A expense.
Suspended travel and entertainment expenses.
Took advantage, in the U.S. and internationally where we were eligible, of available forms of governmental assistance including but not limited to payroll subsidies and tax benefits. We will continue to seek any available potential benefits under future government programs for which we qualify domestically and internationally. In the U.S., because of our status as a public company, we are not eligible for funding under the Shuttered Venue Operators Grant program or the PPP. We believe that our ineligibility on this basis violates the spirit of the U.S. legislation that was passed.
In addition, during the COVID-19 pandemic period, we worked to develop new streams of income:
We launched our new art focused streaming service, Angelika Anywhere.
In the U.S., we developed special programs to allow socially distanced friends & family screenings, and access to our screens for gaming purposes.
We developed a Cinema Eats at Home program whereby guests can enjoy cinema popcorn, food or treats at home through a food delivery service (i.e. Uber Eats) or pick up.
Historically, we have used the cash flow from our cinemas to build our real estate asset base. But, one of the benefits of diversification is, that when the need arises, we can reverse that flow. In 2020 and into the first quarter of 2021, we looked to our real estate assets to assist supporting the rest of our Company’s operations and took steps to monetize certain non-core real estate assets. These are assets which have not suffered a decline in value due to the COVID-19 pandemic and command values substantially in excess of their Net Book Value. More specifically:
On March 4, 2021, we sold our two industrial properties adjacent to the Auckland Airport in Manukau/Wiri in New Zealand, representing 70.4 acres, for NZ $77.2 million (US$56.1 million) (recognizing a gain on sale after costs to sell of NZ$56.3 million (US$41.0 million) over our NZ$18.7 million (US$13.5 million) Net Book Value). As raw land this asset produced no operating income.
On March 5, 2021, we sold our approximately 202-acre raw land holdings in Coachella, California for $11.0 million (recognizing a gain on sale after costs to sell of $6.3 million over our $4.4 million Net Book Value). As a 50% member in Shadow View Land & Farming LLC, the Company received 50% of the sale proceeds. As raw land, this asset produced no operating income.
In January 2021, we listed for sale our Auburn Redyard Centre (including the Telstra building and the 114,000 square feet of undeveloped land) located in Auburn, a growing suburb of Sydney in New South Wales. The Net Book Value of that property is AU$37.7 million (US$29.2 million). It is our current intention to lease back the Reading Cinema at Auburn Redyard.
In February 2021, we listed our Royal George Theatre property in Chicago for sale. We anticipate receiving expressions of interest by the end of April 2021. The Net Book Value of that property is $2.1 million.
In arriving at the determination to rely upon certain of our non-core real estate assets to bridge this gap in cinema revenues, we considered a variety of alternatives, including the issuance of additional common stock and the issuing of high interest rate junk debt. We determined that it would be in the best interests of our Company and our stockholders generally not to dilute equity by issuing stock in the middle of an unprecedented pandemic and not to mortgage our future with high interest rate debt. Accordingly, we are taking this opportunity to cull our real estate holdings and monetize certain assets, and which are not subject to distressed market conditions or fire sale pricing.
OUR COMMERCIAL BRANDS
Set forth below is a brief description of the various brands under which we organize our business operations:
Business Segment / Unit
Our Commercial Brands
Cinema Exhibition / All Countries
United States Australia
Our Reading Cinemas tradename is derived from our over 185-year history as the “Reading Railroad” featured on the Monopoly® game board. Under this brand, we deliver beyond-the-home entertainment (principally mainstream movies and alternative content and food and beverage) across our three operating jurisdictions. All our cinemas are equipped with the latest, state-of-the-art digital screens, 26 Reading Cinemas feature at least one TITAN LUXE, TITAN XC or IMAX premium auditorium, and 93 of our Reading Cinemas screens feature luxury recliner seating.
Reading Cinemas US
Reading Cinemas AU
Reading Cinemas NZ
In 2017, our Consolidated Theatres celebrated 100 years of providing cinematic entertainment in the state of Hawaii. We are the oldest and largest circuit in Hawaii with nine cinemas on the islands of Oahu and Maui. In 2019, we completed the “Top-To-Bottom” renovation of our Consolidated Theatre in Mililani on Oahu, now featuring 14-screens with recliner seating and a TITAN LUXE screen, a full F&B upgrade, including the sale of beer, wine & spirits, and a lobby re-design.
In 2016, we opened an 8-screen state-of-the-art, all recliner cinema, featuring a TITAN LUXE and a full F&B offer. This cinema, located at Ka’Makana Ali’i, is known as Olino.
Our Consolidated Theatre at the Kahala Mall is currently undergoing a “Top-to-Bottom” renovation, however, this renovation has been halted due to the governmental restrictions imposed due to the COVID-19 pandemic.
Several of our Company’s cinemas are arthouses or specialty theaters since their programming features specialty films, such as independent films, international films, and documentaries.
Since its opening in 1989, our New York City Angelika Film Center has and consistently continues to be one of the most popular and influential arthouse cinemas in the U.S., featuring principally independent and foreign films. To date, we have expanded our Angelika Film Center Group to include five other Angelikas: two in the Dallas, TX area, two in the Washington DC area and one in San Diego, CA. Each of the Angelikas also offers a curated food and beverage experience.
In early 2021, the Company announced that the management of the Cinemas 123, Village East and Tower Theatre would be assumed by the operations, programming and marketing teams responsible for the Angelika specialty circuit. Today, these three cinemas have been rebranded as follows: (i) Cinemas 123 by Angelika, (ii) Village East by Angelika and (iii) Tower Theatre by Angelika.
In December 2019, we acquired the iconic 100-year-old State Cinema in Hobart, Tasmania, Australia, which has been ranked the fifth highest grossing arthouse in Australia for the last decade. The cinema, which features 10 screens, a rooftop cinema and bar, a large café and an independent bookstore, is and has been a major cultural destination in North Hobart for decades.
The State Cinema Bar which serves a range of wines and spirits was rebranded the Angelika Bar in 2020.
We continue to look to expand our specialty theater portfolio by looking for more specialty theater sites in the U.S., Australia, and New Zealand.
Angelika Film Center
Business Segment / Unit
Our Commercial Brands
Launched in December 2020, Angelika Anywhere, is an art focused streaming platform available in the U.S. We created Angelika Anywhere to allow us to expand the reach of our “Angelika” based cinema experience beyond the four walls of a conventional brick-and-mortar cinema. Our goal is to offer cinephiles easy and curated access to the type of product that has made our Angelika Film Center the most recognized, dedicated arthouse in North America.
Real Estate / Leasing
Historically known as Tammany Hall, this building with approximately 73,000 square feet of net rentable area overlooking Manhattan’s Union Square, is now substantially complete and in the lease-up phase of its redevelopment. This building, hailed as a dramatic pièce de résistance with its first in the city, over 800-piece glass dome, brings the future to New York’s fabled past and was awarded in 2020 the ENR New York’s Best Projects awards for Renovation/Restoration and for Safety. It is one of a very limited number of locations in Manhattan that will provide a major tenant(s) with a “brandable” site, and the only such location on Union Square.
44 Union Square
Located on 203,000 square feet of land in suburban Brisbane, Newmarket Village is currently comprised of approximately 102,000 square feet of net rentable area, including a Coles Supermarket and 41 other retailers.
At the end of 2017, we completed a major expansion that added a new 8-screen Reading Cinemas with TITAN LUXE, an additional 10,000 square feet of restaurant tenant space and 124 parking spaces.
Adjacent to our Newmarket Village, we own a three-level, 22,000 square feet office building.
As of December 31, 2020, the lease occupancy rate for this center, including the office building, was 98%.
Anchored by our 10-screen Reading Cinemas, Auburn Redyard is an outdoor retail center located in a suburb of Sydney. The center is currently comprised of approximately 519,000 square feet of land and 92,000 square feet of net rentable area, serviced by a 721-space subterranean parking garage. In 2018, we added to the center approximately 21,000 square feet of land currently improved with a 17,000 square feet telephone exchange and office building, rented to Telstra through July 2022, and over the past two years have added an additional 15,000 rentable square feet of fully leased restaurant and retail space.
As of December 31, 2020, the lease occupancy rate for this property was 79%.
In the first quarter 2021, the Company decided to market this property for sale. We plan to lease back and retain the Reading Cinema at this location.
Anchored by our six-screen Reading Cinemas, Cannon Park is located in Townsville, Australia, and is currently comprised of 408,000 square feet of land and 105,000 square feet of net rentable area.
As of December 31, 2020, the lease occupancy rate for this property was 94%.
Cannon Park Townsville
Anchored by our 10-screen Reading Cinemas and four F&B or retail tenancies, The Belmont Common is located in Perth, Australia, and is currently comprised of 103,000 square feet of land and 15,000 square feet of net rentable area.
As of December 31, 2020, the lease occupancy rate for this property was 87%.
The Belmont Common
Business Segment / Unit
Our Commercial Brands
Located in the heart of Wellington – New Zealand’s capital city – this center is comprised, on a consolidated basis through various subsidiaries, of 161,000 square feet of land, including two parking lot parcels totaling 84,184 square feet. Courtenay Central is situated proximate to the Te Papa Tongarewa Museum (attracting over 1.5 million visitors annually, pre-COVID), across the street from the site of the new convention center being constructed to handle the demand for such space in Wellington (estimated to open its doors in 2023) and at a major public transit hub. Damage from the 2016 earthquake necessitated demolition of our nine-story parking garage at the site. In January 2019, unrelated seismic issues caused us to close major portions of the existing cinema and retail structure while we reevaluate the center for future redevelopment as an entertainment themed urban center with potentially a major food and grocery component.
Wellington continues to be rated as one of the top cities in the world in which to live, and we continue to believe that our assets in Wellington are located in one of the most vibrant areas of New Zealand.
Real Estate / Live Theatre
We operate three off-Broadway live theatres, one in Chicago and two in Manhattan, under the Liberty Theatres tradename. In 2018, we entered a license with Audible, a subsidiary of Amazon, pursuant to which our Minetta Lane Theatre serves as Audible’s live theatre home in New York City.
In the first quarter 2021, the Company decided to market the Royal George for sale.
We synergistically bring together cinema-based entertainment and real estate and believe that these two business segments complement one another, as our cinemas have historically provided the steady cash flows that allow us to be opportunistic in acquiring and holding long-term real estate assets (including non-income producing land) and support our real estate development activities. Our real estate allows us to develop an asset base that we believe will stand the test of time and one that can provide financial leverage and, if needed, during times such as the recent pandemic, a funding source to reduce debt and meet operating costs. More specifically, the combination of these two segments provides a variety of business advantages including the following:
Diversification of our Risk Profile and Enhanced Flexibility in meeting our Cash Needs. We believe that our real estate base provides us with the flexibility to raise additional liquidity through one, or a combination of mortgage based borrowing, sale and leaseback transactions and/or sale. Real-estate backed loans typically allow higher leverage of cash flows than operating loans secured by cinema assets, and the underlying assets themselves provide us a more ready source of liquidity through sale than traditional cinema assets. Strategic asset sales has formed a part of our COVID-19 response strategy as evidenced by our strategic sale of our Coachella and Manukau land holdings and the listing for sale of our Royal George Theatre and our Auburn Redyard property, each as discussed in the previous section.
Enhanced Control over our own Destiny. Some exhibitors are finding their cinemas stranded in dead or dying centers. In our entertainment-themed centers, or “ETCs”, we are better able as exhibitors to control this risk and, as landlords, to realize the benefits of the synergies between entertainment and retail. In our five ETCs, we have focused on creating and developing a mix of lifestyle tenancies that, we believe, are less vulnerable to the “Amazon Effect” being felt by traditional centers and that benefit from the foot traffic generated by our cinemas. We are focusing on creating a collaborative marketing environment – a community that benefits both our cinema operations and our other tenants.
Flexibility in Property Use. We are always open to the idea of converting an entertainment property to another use, if there is a higher and better use for the property, or to sell individual assets if an attractive opportunity presents itself. Our 44 Union Square property, which is in the lease-up phase of its redevelopment was initially acquired as an entertainment property.
Reduced Pressure to Deliver Cinema Business Growth; to Grow for Growth’s Sake. Pure cinema operators can encounter financial difficulty as demands upon them to produce cinema-based earnings growth tempt them into reinvesting their cash flow into increasingly marginal cinema sites, overpaying for existing cinemas or entering into high-rent leases. While we believe that attractive opportunities to acquire cinema assets and/or to develop high-end specialty type theaters in the future will continue to exist, we do not feel pressure to build or acquire cinemas for the sake of adding units or building gross cinema revenues. This strategy has, over the years, allowed us to acquire cinemas at multiples of trailing theater cash flow below those paid by third parties. We intend to focus our use of cash flow on our real estate development and operating activities, to the extent that attractive cinema opportunities are not available to us or that such funds are not needed for reinvestment to maintain our cinemas in a competitive position. In 2020, we invested approximately $8.7 million in the upgrading and repositioning of our historic cinema assets or adding new cinemas, and approximately $6.6 million in the acquisition or development of our non-cinema real estate assets. The impact of the COVID-19 pandemic on our business has postponed or reprioritized most of our capital expenditures based on assessments of conditions and liquidity requirements.
The Certainty of Cinema Anchor Tenancies. Cinemas can be used as anchors for larger retail developments such as our “ETCs”, and our involvement in the cinema business can give us an advantage over other real estate developers or redevelopers who must identify and negotiate with third-party anchor tenants. We have used cinemas to create our own anchors at our five ETCs.
Insofar as we are aware, we are the only publicly traded company in the world to apply this two-track, synergistic approach to the cinema and real estate development businesses on an international basis. None of the major cinema exhibition companies (other than Marcus Theatres) have any material landholdings as they operate predominantly on a leased-facility model.
Our hybrid, multi-country strategy emphasizes diversification, and the building of long-term hard asset values. We believe that this business strategy is proving its worth as we have progressed through and are emerging from the current pandemic. We trust that investors will recognize that much of the value we have created is carried at the lower of cost and market value and that while the relative values of the U.S. dollar, the Australian dollar and the New Zealand dollar may vary from time to time, all three are strong economies, and indeed – in the case of Australia and New Zealand, perhaps better able to deal with crises such as the pandemic than the U.S.
Business Mix and Impact of Foreign Currency Fluctuations
We have worked to maintain a balance both between our cinema and real estate assets and between our U.S. and our Australian and New Zealand assets. In 2020, we invested approximately $10.1 million in our U.S. assets: $5.6 million for the development of our real estate assets (principally for the construction of our 44 Union Square property) and $4.4 million for the improvements of our cinema assets (principally the renovations of our cinemas at Kahala and Mililani, and upgrades of certain other cinemas). We invested approximately $4.4 million in our Australian assets: $0.2 million for the development of our real estate assets (principally at Newmarket Village (Brisbane)); $4.3 million for the development of our cinema assets (principally the fit-out and launch of our Jindalee (Queensland) cinema, the fit-out of our Traralgon (Victoria) cinema, the renovations of our cinema at Rhodes and upgrades of certain other cinemas). We invested approximately $0.9 million in our New Zealand assets, all of which was used for the development of real estate assets (principally on the predevelopment of our Courtenay Central and Manukau assets).
As shown in the chart set forth in the International Business Risks section, exchange rates for the currencies of these jurisdictions have varied, sometimes materially. These ratios naturally have an impact on our revenues and asset values, which are reported in USD. Notwithstanding these fluctuations, we continue to believe that, over the long term, operating in Australia and New Zealand is a prudent diversification of risk. Australia has been identified by the United Nations to be among the Top 10 countries in the World in terms of natural resources per person. Deutsche Bank has twice named Wellington the best place in the world to live. The Organization for Economic Cooperation and Development has twice rated Australia as the best place to live and work in the world. In our view, the economies of Australia and New Zealand are stable economies and their lifestyles support our entertainment/lifestyle focus.
At December 31, 2020, the book value of our assets was $690.2 million, and our consolidated stockholders’ book equity was $81.2 million. Calculated based on book value, $357.2 million, or 52% of our assets, relate to our cinema exhibition activities and $312.8 million, or 45%, of our assets, relate to our real estate activities.
For additional segment financial information, please see Note 1 – Description of Business and Segment Reporting to our 2020 consolidated financial statements.
We have diversified our assets among three countries: the United States, Australia, and New Zealand. Based on book value, at December 31, 2020, we had approximately 49% of our assets in the United States, 39% in Australia and 12% in New Zealand compared to 53%, 37%, and 10%, respectively, at the end of 2019. This shift in the ratio is principally due to the launch of our Reading Cinemas in Jindalee, Queensland, Australia and currency fluctuations.
At December 31, 2020, we had cash and cash equivalents of $26.8 million, which are treated as corporate assets. Our cash included $7.7 million denominated in U.S. dollars, $6.3 million (AU$8.2 million) in Australian dollars, and $12.8 million (NZ$17.9 million) in New Zealand dollars. We had total worldwide non-current assets of $651.4 million, distributed as follows: $327.6 million in the United States, $255.5 million (AU$393.7 million) in Australia and $68.3 million (NZ$94.9 million) in New Zealand. We had $6.1 million unused capacity of available and unrestricted corporate credit facilities at December 31, 2020.
For 2020, our gross revenues in the United States, Australia, and New Zealand were $25.7 million, $31.3 million, and $5.8 million, respectively, compared to $151.5 million, $103.0 million, and $22.3 million for 2019. All three countries posted revenue decreases in 2020 as a result of a decline in cinema attendance due to the COVID-19 pandemic, offset to some extent by increases in food and beverage (“F&B”) per caps.
We are dedicated to creating engaging cinema experiences for our guests through hospitality-styled comfort and service, state-of-the-art cinematic presentation, uniquely designed venues, curated film and event programming, and crafted food and beverage options. As discussed previously, we manage our worldwide cinema exhibition business under various brands.
Shown in the following table are the number of locations and screens in our theater circuit in each country, by state/territory/region, our cinema brands, and our interest in the underlying asset as of December 31, 2020:
State / Territory /
Interest in Asset
Reading Cinemas, Angelika Film Center
Angelika Film Center, City Cinemas
Angelika Film Center
Angelika Film Center
Angelika Film Center
New South Wales
Reading Cinemas, Event Cinemas(1)
Reading Cinemas, State Cinema
Reading Cinemas, Rialto Cinemas(2)
Reading Cinemas, Rialto Cinemas(2)
Bay of Plenty
New Zealand Total
(1)Our Company has a 33.3% unincorporated joint venture interest in a 16-screen cinema located in Mt. Gravatt, Queensland managed by Event Cinemas.
(2)Our Company is a 50% joint venture partner in two New Zealand Rialto cinemas totaling 13 screens. We are responsible for the booking of these cinemas and our joint venture partner, Event Cinemas, manages their day-to-day operations.
In January 2019, we acquired our first cinema in Tasmania, a well-established four-screen cinema with a liquor license in Devonport, Australia. In order to mitigate the loss from the ongoing temporary closure of our Reading Cinemas at Courtenay Central, at the end of June 2019, we opened a three-screen pop-up in Lower Hutt located in the greater region of Wellington, New Zealand. In December 2019, we acquired our second cinema in Tasmania, the iconic ten-screen State Cinema in Hobart, and we launched our six-screen Reading Cinemas in Burwood, a suburb of Melbourne, Australia. On December 22, 2020, we opened a Reading Cinemas in Jindalee, Queensland featuring six-screens with recliner seating and a TITAN LUXE screen bringing our current worldwide cinema count to 61. In addition, as of the date of this Report, we have entered into three lease agreements, providing for the development of an additional 19 state-of-the-art screens. This includes the previously announced state-of-the art cinema at Miller’s Junction in Melbourne, Australia. While no assurances can be given, the completion of these three new complexes is anticipated to increase our cinema count to 64 before the end of 2022.
We continue to focus on upgrading our existing cinemas and developing new cinema opportunities to provide our customers with premium offerings, including luxury recliner seating, state-of-the-art presentation including sound, lounges, cafés and bar service, and other amenities. Since 2016, we have increased the number of auditoriums featuring recliner seating from 58 to 164 (excluding our joint ventures). In addition, 31 of our auditoriums now feature large format TITAN XC, TITAN LUXE, or IMAX screens. Our circuit has been completely converted to digital projection and sound systems. In 2019, we upgraded three auditoriums at three of our locations to feature DOLBY ATMOS sound which we consider to be the best in the industry at this time. Additionally, our newly opened Reading Cinemas in Jindalee features DOLBY ATMOS sound.
While attendance and gross box office declined for the exhibition industry in the U.S., Australia and New Zealand in 2020, when compared to 2019, as a result of the COVID-19 pandemic, we believe that the cinema exhibition business will continue to generate fairly consistent cash flows in the years ahead, even in recessionary or inflationary environments, because people will continue to spend a reasonable portion of their entertainment dollars on entertainment outside of the home. Because of the uncertainty of the duration of the impact from the COVID-19 virus on leisure and entertainment activities, our short-term results will likely be adversely impacted. For example, New York had ordered cinemas to temporarily close starting March 17, 2020 and continued to be temporarily closed until March 5, 2021. When compared to other forms of outside-the-home entertainment, movies continue to be a popular and competitively priced option. We believe that the advent of an array of streaming and mobile video services is more of a threat to the delivery of traditional in-home forms of entertainment (such as cable and satellite providers) than it is to the exhibition industry. We believe that, historically, our industry has benefited as the amount of quality product available for exhibition has increased. Despite the current situation, the amount of product coming to consumers is in some ways overwhelming. We believe that this means that cinema exhibition is going to be an increasingly important way for content providers to establish an identity for their product that will carry over into the streaming and mobile video market and aid consumers in their programming choices. We believe that our cinemas
will be critical to provide the “Grand Opening” needed for product providers attempting to compete in the streaming market. This being the case, we likewise believe that the entire cinema-going experience needs to be engaging to provide this “Grand Opening” feel. Acting on that belief, we have focused in recent periods on the upgrading of our cinemas to feature enhanced safety and cleanliness protocols, luxury recliner seating, state-of-the-art sound, large format screens, and enhanced food and beverage. We have invested in technology to make our reservation system more user friendly and to encourage customer loyalty.
Recognizing that the cinema exhibition business is a well-established business, in the post-COVID era, we continue to see growth opportunities in our cinema exhibition business principally from (i) the enhancement of our existing cinemas, (ii) the development in select markets of art and specialty cinemas, (iii) the development of new state-of-the-art cinemas on land that we already own or may in the future acquire, and (iv) the development of new, mainstream cinemas in selected markets. While we continue to consider possible opportunities in third-party developments, we prefer, where possible, to put our capital to work in properties that we own rather than take on potentially burdensome lease obligations with their built-in rent increases, pass-throughs, and their dependence on third-party shopping center operators.
Pre-COVID, we continued to expand and upgrade our circuits on an opportunistic basis. Our philosophy is not one of growth at any cost and our goal is not to have more screens than anyone else. Rather, our goal is to have high quality, consistently grossing cinemas, and to grow on a steady and sustainable basis. In March of 2020, our renovation at the Consolidated Theatres at the Kahala Mall in Honolulu in the U.S was suspended due to the COVID-19 shutdown. However, we successfully opened a brand new Reading Cinemas in Jindalee, Queensland, Australia. In addition to starting work at our Kahala theater at the end of 2019, in 2019 our refurbishments included Mililani and Rohnert Park in the U.S., Chirnside Park, Dandenong, Maitland, Harbour Town, Waurn Ponds, West Lakes, and Rhodes in Australia, and The Palms in New Zealand. We also upgraded nine screens at five of our locations to luxury recliner seating, in addition to launching Reading Cinemas at Burwood which features luxury recliner seating in all six auditoriums and extended our enhanced food and beverage offerings to 29 of our cinemas. In 2018, our refurbishments included Manville and Mililani in the U.S., and Charlestown, Elizabeth, and Auburn in Australia. We also completed the conversion at our Reading Cinemas in Murrieta, California (Cal Oaks) which now features our “Spotlight” level of service in six out of the 17 auditoriums. “Spotlight” puts focus directly on our customers by providing an in-auditorium, waiter-serviced, enhanced F&B experience for their enjoyment.
Pre-COVID, we continued to execute our strategic priority of upgrading the food and beverage menu at a number of our U.S. cinemas. We are focused on the renovation and upgrading of our existing U.S. cinemas, along the lines of our Carmel Mountain cinema. Working with former Food Network chef Santos Loo, we are continuing to curate and upgrade our food and beverage offerings. During 2017, we created our “Spotlight” service concept, which we implemented at our Reading Cinemas at Cal Oaks cinema in 2018. At year-end 2020, we currently have beer and wine, and in some cases liquor, licenses for 16 of our venues in the U.S. and are in the application process of obtaining licenses for an additional six venues. As a result, we are currently offering alcoholic beverages at 14 of our U.S. cinemas and two of our live theatres. In our international cinema operations, we offer alcoholic beverages at 15 of our cinemas in Australia and five of our cinemas in New Zealand (which includes certain joint venture cinemas).
At December 31, 2020, our principal tangible assets included:
interests in 61 cinemas comprising some 504 screens;
fee interests in three live theatres (the Orpheum and Minetta Lane in Manhattan and the Royal George in Chicago); in the first quarter 2021, we listed our Royal George property for sale;
fee interest in our 44 Union Square property, previously used by us as a live theatre venue and for rental to third parties which is now in the lease-up phase of its redevelopment for retail and office uses;
fee interest in one cinema (the Cinemas 1,2,3) in Manhattan;
fee interests in two cinemas in Australia (Bundaberg and Maitland) and four cinemas in New Zealand (Dunedin, Invercargill, Napier and Rotorua);
fee interest in our ETCs in Sydney (Auburn Redyard), Brisbane (Newmarket Village), Townsville (Cannon Park), Perth (The Belmont Common) and Wellington (Courtenay Central), each of which includes a Reading Cinemas. In the first quarter, we listed our Auburn Redyard for sale;
fee interest in two office buildings, our corporate offices in Culver City, Los Angeles and Melbourne, Australia. Both buildings are mixed-use assets or housing our corporate staff with any surplus space rented.
in addition to the fee interests described immediately above, fee ownership of approximately 20.8 million square feet of developed and undeveloped real estate in the United States, Australia and New Zealand (of which approximately 11.9 million square feet of raw land in the United States and New Zealand was monetized in the first quarter of 2021); and
cash and cash equivalents, aggregating $26.8 million.
Although we operate cinemas in three nations, the general nature of our operations and operating strategies does not vary materially from jurisdiction-to-jurisdiction. In each jurisdiction, our gross receipts are primarily from box office receipts, food and beverage sales, gift card purchases, online ticketing fees, and screen advertising. Our ancillary revenue is created principally from theater rentals (for example, for film festivals and special events), and ancillary programming (such as concerts and sporting events).
Our cinemas generated approximately 60% of their 2020 revenue from box office receipts. Ticket prices vary by location, and in selected locations we offer reduced rates for senior citizens, children and, in certain markets, military and students.
Showtimes and features are placed in advertisements on our various websites, on internet sites and, in some markets, in limited instances, local newspapers. We are continually increasing our presence in social media, thereby, reducing our dependency on print advertising. Film distributors may also advertise certain feature films in various print, radio and television media, as well as on the internet, and distributors generally pay those costs.
F&B sales accounted for approximately 30% of our total 2020 cinema revenue. Although certain cinemas have licenses for the sale and on-premises consumption of alcoholic beverages, historically F&B products have been primarily popcorn, candy, and soda. This is changing, as more of our theaters are offering expanded food and beverage offerings. One of our strategic focuses is to upgrade our existing cinemas with expanded F&B offerings consistent with what we believe to be the new position of cinemas in the pathway from content provider to consumer.
Screen advertising and other revenue contribute approximately 10% of our total 2020 cinema revenue. With the exception of certain rights that we have retained to sell to local advertisers, generally speaking, we are not in the screen advertising business and nationally recognized screen-advertising companies’ contract with us for the right to show such advertising on our screens.
Management of Cinemas
With the exception of our three unconsolidated cinemas, we manage our cinemas with executives located in Los Angeles and Manhattan in the U.S., Melbourne, Australia, and Wellington, New Zealand. Our two New Zealand Rialto cinemas are owned by a joint venture in which Reading New Zealand is a 50% joint venture partner. While we assist in the booking of these two cinemas, our joint venture partner, Event Cinemas, manages their day-to-day operations. Our one-third interest in a 16-screen Brisbane cinema is passive in nature, that cinema being managed by Event Cinemas.
Licensing and Pricing
Film product is available from a variety of sources, ranging from the major film distributors, such as Paramount Pictures, Twentieth Century Studios, Warner Bros, Disney, Sony Pictures, Universal Pictures and Lionsgate, to a variety of smaller independent film distributors. In Australia and New Zealand, some of those major distributors distribute through local unaffiliated distributors. Worldwide, the major film distributors dominate the market for mainstream conventional films. In the U.S., art and specialty film is
distributed through the art and specialty divisions of these major distributors, such as Searchlight Pictures and Sony Pictures Classics, and through independent distributors such as A24 and Neon. Film payment terms are generally based on an agreed-upon percentage of box office receipts that will vary from film-to-film.
Film is allocated by the applicable distributor among competitive cinemas and in some cases to streaming services. Accordingly, from time to time, we may be unable to license every film that we desire to play. In the Australian and New Zealand markets, we generally have access to all film product in the market. Due to the COVID-19 pandemic, we have seen a rise in streaming services with greater quantity and quality of films offered. We have also seen certain major distributors skip the traditional theatrical window and go straight to streaming, PVOD or Video on Demand (“VOD”).
Competition for films may be intense, depending upon the number of cinemas in a particular competitive market. Our ability to obtain top grossing, first run feature films may be adversely impacted by our comparatively small size, and the limited number of screens and markets that we can supply to distributors. Moreover, because of the dramatic consolidation of screens into the hands of a few very large and powerful exhibitors such as AMC, Cineworld, Cinemark, and Cineplex, who between them control over 60% of the North American market, these mega-exhibition companies are in a position to offer distributors access to many more screens in major markets than we can. Also, the majors have a significant number of markets where they operate without material competition, meaning that the distributors have no alternative exhibitor for their films in these markets. Accordingly, distributors may decide to give preference to these mega-exhibitors when it comes to licensing top-grossing films, rather than deal with independents such as ourselves. The situation is different in Australia and New Zealand, where typically every major multiplex cinema has access to all of the film currently in distribution, regardless of the ownership of that multiplex cinema. However, on the reverse side, we have suffered somewhat in these markets from competition from boutique operators, who are able to book top grossing commercial films for limited runs, thus increasing competition for customers wishing to view such top grossing films. We believe it likely that the power of these major circuits will increase vis-à-vis smaller independent and regional operators with the termination of the so called “Paramount Decree” by the United States District Court at the request of the Department of Justice on August 7, 2020. The order provides for a two year sunset period on the Paramount Decree’s provisions banning block booking and circuit dealing.
The availability of state-of-the-art technology and/or luxury recliner seating can also be a factor in the preference of one cinema over another. In recent periods, a number of cinemas have opened or reopened featuring luxury recliner seating and/or expanded food and beverage service, including the sale of alcoholic beverages and food served to the seat. We have, for a number of years, offered alcoholic beverages in certain of our Australia and New Zealand cinemas and at certain of our Angelika Film Centers in the U.S. We are currently working to upgrade the seating and food and beverage offerings (including the offering of alcoholic beverages) at a number of our existing cinemas. We now offer alcoholic beverages at over half of our worldwide cinemas.
The film exhibition markets in the United States, Australia, and New Zealand are to a certain extent dominated by a limited number of major exhibition companies. Based on information contained in filings made with the SEC, as of December 31, 2020, the principal exhibitors in the United States are AMC (with 7,668 screens in 590 cinemas, which includes the acquisition of Carmike), Regal (with 7,211 screens in 549 cinemas as of March 2021), acquired by Cineworld Group, the U.K.’s largest cinema operator, and Cinemark (with 4,507 screens in 331 cinemas). As of December 31, 2020, we were the 13th largest exhibitor with 1% of the box office in the United States with 238 screens in 24 cinemas.
The principal exhibitors in Australia are Greater Union, which does business under the Event Cinemas name (a subsidiary of Event Hospitality and Entertainment, Limited) (“Event”), Hoyts Cinemas (“Hoyts”), and Village Cinemas (“Village”). The major exhibitors control approximately 61% of the total cinema box office: Event 30%, Hoyts 20%, and Village 11%. Event has 554 screens nationally, Hoyts 379 screens, and Village 223 screens. By comparison, our 180 screens (excluding any joint venture theaters) represent approximately 8% of the total box office making Reading the fourth largest exhibitor in Australia.
The principal exhibitors in New Zealand are Event Cinemas with 131 screens and Hoyts with 68 screens, nationally. The major exhibitors in New Zealand control approximately 49% of the total box office: Event 31% and Hoyts 18%. Reading has 57 screens (excluding its interests in unconsolidated joint ventures). Reading has 11% of the market (Event and Reading market share figures exclude any partnership theaters) and we are the third largest exhibitor in New Zealand.
In Australia and New Zealand, the industry is somewhat vertically integrated in that Roadshow Film Distributors, a subsidiary of Village, serves as a distributor of film in Australia and New Zealand for Warner Bros.
Many of our competitors have substantial financial resources which could allow them to operate in a more competitive manner than us.
In-Home, Streaming and Mobile Device Competition
The in-home streaming and mobile device entertainment industry has experienced significant leaps in recent periods in both the quality and affordability of in-home and mobile device entertainment systems and in the accessibility to, and quality of, entertainment programming through cable, satellite, and internet distribution channels. The success of these alternative distribution channels (like Netflix, Hulu, and Amazon Prime Video) and the entrance of new sources of product that they create are competing with films produced for theatrical release which puts additional pressure on film distributors to reduce and/or eliminate the time period between theatrical and secondary release dates. For instance, WarnerMedia has announced that it will stream its entire 2021 slate of Warner Bros. movies on HBO Max the same day they open in theaters.
The myriad of streaming services continues to grow. In 2019, two streaming services debuted, Apple TV+ and Disney+. In 2020, HBO Max and NBCUniversal’s Peacock launched. In December 2020, we launched our very own streaming service in the U.S., Angelika Anywhere, which is curated for film lovers of independent and foreign film, documentaries, and the more specialized movies from the major studios. We anticipate expanding this streaming service to Australia and New Zealand in 2021. In January 2021, Discovery+ launched and ViacomCBS launched Paramount+ in early March 2021.
We are responding to these challenges generally by increasing the comfort and service levels available at our cinemas, by offering convenient online ticket reservation services with guaranteed seating, by investing in larger screens and enhanced sound, by offering more specialized and alternative product to our audiences, and by providing value for the moviegoer’s dollar. We are focusing on the fact that going to the movies is a social experience, and we are working to make that experience the best that it can be. We must differentiate ourselves from other forms of video entertainment by emphasizing the special nature of seeing film and alternative content in a cinema environment and by developing ways to position ourselves to take advantage in the increased output of film and feature product. These are issues common to both our U.S. and international cinema operations.
Competitive issues are discussed in detail under Item 1A – Risk Factors.
Major films are generally released to coincide with holidays. With the exception of Christmas and New Year’s days, this fact provides some balancing of our revenue because there is no material overlap between holidays in the United States and those in Australia and New Zealand. Distributors will delay, in certain cases, releases in Australia and New Zealand to take advantage of Australian and New Zealand holidays that are not celebrated in the United States. However, the deferral of releases is becoming increasingly less common, given the need to address internet and other channels of distribution that operate on a worldwide basis and are less tied to holiday schedules.
We engage in the real estate business through the development and our ownership and rental or licensing to third parties of retail, commercial and live theatre assets. We own the fee interests in all of our live theatres, and in 12 of our cinemas (as presented in the preceding table within the “Cinema Exhibition” section). Our real estate business creates long-term value for our stockholders through the continuous improvement and development of our investment and operating properties, including our ETCs.
Our real estate activities have historically consisted principally of:
the ownership of fee or long-term leasehold interests in properties used in our cinema exhibition activities or which were acquired for the development of cinemas or cinema-based real estate development projects;
the acquisition of fee interests in land for general real estate development;
the licensing to production companies of our live theatres; and,
the redevelopment of our existing fee-owned cinema or live theatre sites to their highest and best use.
In light of the geographic reach of our business, and the highly localized nature of the real estate business, we have historically made use of third-party contractors to provide on-site management and leasing administrations functions of our Australia and New Zealand real estate portfolio. We have begun, however, in recent periods to selectively build our internal resources in this regard, allowing us to terminate all third-party contracts.
Real Estate Holdings and Developments
At the end of 2019, we substantially completed the construction phase of our 44 Union Square redevelopment project, achieving approximately 73,000 square feet of net rentable area (calculated inclusive of anticipated BOMA adjustments) comprised of retail and office space. During the COVID-19 pandemic, New York City shutdown non-essential construction and business, including construction work at our site. However, the construction of the improvements necessary to obtain a core and shell temporary certificate of occupancy were substantially completed prior to the shutdown. On July 1, 2020, the site reopened for construction activities, and on August 31, 2020, we received a temporary certificate of occupancy for the core and shell of the building. We are now in the lease-up phase with construction being complete (except for minor punch list items). A short video on this project can be seen at www.44unionsquare.com.
Regarding our Cinemas 1,2,3 property in Manhattan, we have received the consent of the 25% minority member of the ownership entity for the redevelopment of the property. We continue to evaluate the potential to redevelop the property as a mixed-use property. As our negotiations with our neighbor for a joint development did not bear fruit and given the closure of our two cinemas in New York City’s Upper East Side, we have determined to continue to operate this location as a cinema for at least the near term. We are pursuing a rezoning of this property so as to allow us to continue our cinema use as a part of any such redevelopment. However, all other redevelopment activity related to this location has been suspended, until we are able to develop a better understanding of the ongoing effects of COVID-19 on our assets and the market.
On April 11, 2016, we purchased an approximately 24,000 square foot office building with 72 parking spaces located at 5995 Sepulveda Boulevard in Culver City, California for $11.2 million. We moved our corporate headquarters into the building in February 2017. Culver City has in recent years developed as a center of entertainment and high-tech activity in Los Angeles County. Currently, we occupy the third floor as our headquarters’ offices from which we conduct our executive and administrative operations. On May 27, 2020, we leased on a multi-year basis the entire second floor to WWP Beauty (wwpinc.com), a global company with over 35 years of experience providing the cosmetics and personal care industries with a range of packaging needs. On the date of the lease, possession of the space was turned over to WWP Beauty, which is responsible for building out its space. Rent commenced, on a straight-line basis, in May 2020 and we began receiving cash rental income in October 2020. This building in now 100% occupied. The tenant is moving ahead with tenant improvement works and is estimated to complete construction by end of April 2021.
All of our leasehold interests are cinema operating properties.
We continue to work on the expansion and upgrading of our Newmarket Village ETC in Brisbane through the expansion or improvement of our Reading Cinemas at each of these centers and enhancing food and beverage focused space.
At Auburn Redyard, since the beginning of 2016, we have constructed and entered into leases representing approximately 15,000 square feet of additional retail space, which increased the square footage of that center from approximately 117,000 to approximately 132,000 square feet. In 2018, we acquired a 21,000 square foot in-fill property, currently improved with a 17,000 square foot telephone exchange and office building, leased to Telstra through July 2022. This increased our frontage on Parramatta Road to almost 2,000 uninterrupted square feet. The center is now comprised of 519,000 square feet of land, 92,000 square feet of net rentable area, surface parking for 361 vehicles and subterranean parking for 360 vehicles and is 79% leased. The center also has approximately 114,000 square feet of additional land available for development. This expansion was funded with a mixture of cash flow and our current debt facility. This asset was listed for sale in January 2021.
At Newmarket Village in December of 2017, we added a state-of-the art eight-screen Reading Cinemas, 10,000 square feet of additional retail space and 124 additional parking spaces. On November 30, 2015, we acquired an approximately 23,000 square foot parcel adjacent to our tenant Coles supermarket. This property is currently improved with an office building, which is now fully leased. The office building leases have early development provisions allowing us to terminate these arrangements in connection with a redevelopment of the property. We intend to ultimately demolish this office building and to integrate this parcel into Newmarket Village. This will increase our Newmarket Village footprint from approximately 204,000 square feet to approximately 227,000 square feet. Our Newmarket Village project was funded with a mixture of cash flow and our current debt facility and is currently approximately 98% leased.
On December 23, 2015, we acquired two adjoining properties in Townsville, Queensland, Australia for a total of $24.1 million (AU$33.4 million) comprised of approximately 9.4-acres. The total gross leasable area of the two properties, the Cannon Park City Centre and the Cannon Park Discount Centre, is 105,000 square feet. Our multiplex cinema at the Cannon Park City Centre is the anchor tenant of that center. This acquisition is consistent with our business plan to own, where practical, the land underlying our entertainment assets. We operate these two properties as a single ETC. This acquisition was funded with a mixture of cash flow and our current debt facility and is currently 94% leased.
Located in the heart of Wellington – New Zealand’s capital city – Courtenay Central is comprised, on a consolidated basis through various subsidiaries, of 161,000 square feet of land situated proximate to (i) the Te Papa Tongarewa Museum (attracting over 1.5 million visitors annually, pre-COVID), and (ii) across the street from the site of the future Wellington Convention and Exhibition Centre (wcec.co.nz), the capital’s first premium conference and exhibition space, which is due to be completed in 2023. Despite the COVID-19 pandemic, construction for this major public project has resumed and plans include the creation of a public concourse linking through to Wakefield Street, which is across the street from our Courtenay Central project.
As previously reported, damage from the 2016 Kaikoura earthquake necessitated demolition of our nine-story parking garage at the site, and unrelated seismic issues caused us to close major portions of the existing cinema and retail structure in early 2019. Wellington continues to be rated as one of the top cities in the world in which to live, and we continue to believe that the Courtenay Central site is located in one of the most vibrant and growing commercial and entertainment precincts of Wellington. In 2019, UNESCO named Wellington as a UNESCO Creative City of Film. Prior to the COVID-19 pandemic, the real estate team had developed a comprehensive plan featuring a variety of uses to complement and build upon the “destination quality” of the Courtenay Central location. Notwithstanding the COVID-19 pandemic, our real estate team is continuing to work with our consultants, potential tenants, and city representatives to advance our redevelopment plans for this property.
In addition to certain historic railroad properties (such as our 8.2-acre North Viaduct and adjacent commercial properties in Philadelphia) and certain expansion spaces associated with our existing ETCs, we had two unimproved properties: (i) our 50% interest in a 202-acre parcel in Coachella, California (near the grounds where the Coachella Music Festival is held), currently zoned for residential and mixed-use purposes, and (ii) our 70.4-acre parcel in Manukau/Wiri, a suburb of Auckland, New Zealand (located adjacent to the Auckland International Airport) zoned for a mixture of light and heavy industrial uses and a limited amount of supporting mixed-use, such as restaurants and convenience stores. Both these properties were sold subsequent to year-end.
Our Coachella property was acquired as a long-term land hold. In December 2020, we classified this non-income producing land as held for sale as part of our strategy to monetize certain real estate assets in order to provide the necessary cash to support our Company through the COVID-19 pandemic. This property, which consists of land and certain improvements to that land, was transferred to Land Held for Sale at its book value of $4.4 million, being the lower of cost and fair value less costs to sell. The sale of this land was completed on March 5, 2021 for $11.0 million. These actions were approved by our 50% member, Shadow View Land and Farming LLC, and the Audit and Conflicts Committee of our Board of Directors. As a 50% member in Shadow View Land & Farming LLC, the Company received 50% of the sale proceeds.
Our property in Manukau/Wiri (approximately 64.0-acres) was primarily zoned for light industrial uses. The remaining 6.4-acres of this property were already zoned for heavy industrial use. In December 2020, we classified this non-income producing land as held for sale as part of our strategy to sell certain real estate assets in order to provide the necessary cash to support our Company through the COVID-19 pandemic. We sold this land on March 4, 2021 for NZ$77.2 million (US$56.1 million).
While we report our real estate activities as a separate segment, they have historically operated as an integral portion of our overall business and have principally been in support of that business. We have, however, acquired or developed certain properties that do not have any cinema or other entertainment component. These assets were monetized during the first quarter 2021, as described above.
Our real estate activities, holdings and developments are described in greater detail in Item 2 – Properties.
HUMAN CAPITAL RESOURCES
Our Company employs experienced, diverse, and creative employees as they are among our best assets and are critical for our continued success. As of December 31, 2020, we had approximately (i) 86 executive/administrative and 9 real estate employees who were primarily full-time and (ii) 4 live theatre and 1,392 cinema employees worldwide who were predominately part-time/casual employees. A small number of our cinema employees in New Zealand are union members, as are our projectionists in Hawaii. None of our Australian-based employees or other employees are subject to union contracts. Overall, we are of the view that the existence of these collective bargaining agreements does not materially increase our costs of labor or our ability to compete.
We offer our full-time employees a competitive benefits package. In the U.S., we offer a 401(k)-retirement savings plan (our “401(k) Plan”) that allows eligible U.S. employees to defer a portion of their compensation, within limits prescribed by the Internal Revenue
Code, on a pre- and post-tax basis through contributions to the plan. We match contributions made by participants in our 401(k) Plan up to a specified percentage, and these matching contributions are fully vested as of the date on which the contributions are made. Currently, matching has been deferred as allowed by our 401(k) plan due to COVID-19. For our employees in Australia and New Zealand, we offer superannuation plans in line with the requirements as it pertains to each government. We believe that providing a vehicle for retirement savings through our 401(k) Plan or superannuation plan, and making fully vested matching contributions in the U.S., in accordance with our compensation policies, adds to the overall desirability of our employee compensation package and further incentivizes our employees.
We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) designed to help our Directors and employees resolve ethical issues. Our Code of Conduct applies to all Directors and employees and is posted on our website. Our Board has established a means for employees to report a violation or suspected violation of the Code of Conduct anonymously. In addition, we have adopted an “Amended and Restated Whistleblower Policy and Procedures,” which is also posted on our website, and establishes a process by which employees may anonymously disclose to our Principal Compliance Officer alleged fraud or violations of accounting, internal accounting controls or auditing matters.
Our business on climate risks and sustainability.
We strive to do our part in the fight against climate change.
In our theaters we offer, (i) eco-friendly food containers, bags and cups, (ii) plastic straws and utensils are available only upon request, and (iii) we are looking at transitioning to paper straws and bamboo cutlery in the immediate future. We provide recycle bins at all of our theaters. Prior to the COVID-19 pandemic, we completed the following energy enhancements, (i) LED Lighting retrofits to lower KWH Usage and reduce our energy consumption across all the theatres, (ii) installed modern and smart EMS systems at various locations, to efficiently control the current HVAC systems, and (iii) replacement of outdated HVAC package units to improve our carbon footprint. We have also done extensive research and analysis, but not yet implemented a project to install renewable energy, such as Solar Systems on the roofs of select cinema locations.
Australia and New Zealand
In our theaters, we are (i) using commercially compostable bamboo takeaway cutlery nationally, (ii) using commercially compostable paper straws (which are individually wrapped in paper to ensure we are COVID safe), (iii) using commercially compostable coffee cups, popcorn boxes, takeaway pizza boxes and takeaway clamshell hot food boxes, and (iv) currently have a packaging request for quote which stipulates our requirements for all our packaging (including soft drink cold cups) to be commercially compostable. Our goal is to ensure none of our packaging will have any plastic components. At our Burwood cinema in Australia, we are separating waste into three waste streams (compostable material/general waste/recyclable). At our Belmont ETC in Australia, we have installed Solar Panels to minimize our reliance on non-renewable energies.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Our statements in this annual report, including the documents incorporated herein by reference, contain a variety of forward-looking statements as defined by the Securities Litigation Reform Act of 1995, including those related to the expected timing of the reopening of our cinemas and theatres; our expected operating results, including due to our diverse business structure; our expectations regarding the success of our new initiatives; our expectations regarding the potential sale of non-core real estate assets; our expectations regarding the future of the cinema exhibition industry; our expectations regarding people continuing to use discretionary funds on entertainment outside of the home; our expectations regarding the impact of streaming and mobile video services; our belief regarding the attractiveness of 44 Union Square to potential tenants; our expectations regarding the commencement of rental income on our office building; our expectations regarding the resiliency of the industrial property sector in New Zealand; our expectations regarding our stock repurchase program; our expectations regarding credit facility covenant compliance and our ability to continue to obtain necessary covenant waivers; and our expectations of our liquidity and capital requirements and the allocation of funds. Forward-looking statements reflect only our expectations regarding future events and operating performance and necessarily speak only as of the date the information was prepared. No guarantees can be given that our expectation will in fact be realized, in whole or in part. You can recognize these statements by our use of words, such as “may,” “will,” “expect,” “believe,” "intend," and “anticipate” or other similar terminology.
These forward-looking statements reflect our expectation based on information currently available to us after having considered a variety of risks and uncertainties. However, they are necessarily the product of internal discussion and do not necessarily completely reflect the views of individual members of our Board of Directors or of our Management team. Individual Board members and individual members of our Management team may have different views as to the risks and uncertainties involved and may have different views as to future events or our operating performance.
Among the risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed in or underlying our forward-looking statements are the following:
with respect to our cinema operations:
the adverse impact of the COVID-19 pandemic which resulted in the temporary shutdown of our global theaters beginning in March 2020, and the adverse effects such pandemic may continue to have on our anticipated cinema reopening dates and on the dates that public performances will resume in our live theatres in New York City and Chicago;
the adverse effects of the COVID-19 pandemic on our Company’s results from operations, liquidity, cash flows, financial condition, and access to credit markets;
the adverse impact of the COVID-19 pandemic on short-term and/or long-term entertainment, leisure and discretionary spending habits and practices of our patrons;
the decrease in attendance at our cinemas and theatres after they have reopened due to (i) continued health and safety health concerns, (ii) a change in consumer behavior in favor of alternative forms of entertainment, or (iii) additional regulatory requirements limiting our seating capacity;
reduction in operating margins (or negative operating margins) due to the implementation of social distancing and other health and safety protocols;
potentially uninsurable liability exposure to customers and staff should they become (or allege that they have become) infected with COVID-19 while at one of our facilities;
unwillingness of employees to report to work due to the adverse effects of the COVID-19 pandemic or to otherwise conduct work under any revised work environment protocols;
the adverse impact that the COVID-19 pandemic may continue to have on the national and global macroeconomic environment;
competition from cinema operators who have successfully used debtor laws to reduce their debt and/or rent exposure;
the uncertainty as to the scope and extent of government responses to the COVID-19 pandemic;
the disruptions or reductions in the utilization of entertainment, shopping, and hospitality venues, as well as in our operations, due to pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as COVID-19, or to changing consumer tastes and habits;
the number and attractiveness to moviegoers of the films released in future periods, and potential changes in release dates for motion pictures;
the lack of availability of films in the short- or long-term as a result of (i) major film distributors releasing scheduled films on alternative channels or (ii) disruptions of film production;
the amount of money spent by film distributors to promote their motion pictures;
the licensing fees and terms required by film distributors from motion picture exhibitors in order to exhibit their films;
the comparative attractiveness of motion pictures as a source of entertainment and willingness and/or ability of consumers (i) to spend their dollars on entertainment and (ii) to spend their entertainment dollars on movies in an outside-the-home environment;
the extent to which we encounter competition from other cinema exhibitors, from other sources of outside-the-home entertainment, and from inside-the-home entertainment options, such as “home theaters” and competitive film product distribution technology, such as streaming, cable, satellite broadcast, video on demand platforms, and Blu-ray/DVD rentals and sales;
the impact of major movies being released directly to one of the multitude of streaming services available;
the impact of certain competitors’ subscription or advance pay programs;
the failure of our new initiatives to gain significant customer acceptance and use or to generate meaningful profits;
the cost and impact of improvements to our cinemas, such as improved seating, enhanced food and beverage offerings, and other improvements;
the ability to negotiate favorable rent payment terms with our landlords;
disruptions during theater improvements;
the extent to, and the efficiency with, which we are able to integrate acquisitions of cinema circuits with our existing operations;
the risk that California will adopt a split property tax regime resulting in material increases in our liability for pass through property taxes;
in the U.S., the impact of any termination of the so called “Paramount Decree;”
the risk of damage and/or disruption of cinema businesses from earthquakes as certain of our operations are in geologically active areas;
the impact of protests, demonstrations, and civil unrest on, among other things, government policy, consumer willingness to go to the movies, and the spread of COVID-19; and
additional delays by our landlords in the State of Victoria in the hand-over of cinema space to us which will result in further delays of our planned opening dates.
with respect to our real estate development and operation activities:
the impact of the COVID-19 pandemic may continue to affect many of our tenants at our real estate operations in the United States, Australia, and New Zealand, their ability to pay rent, and to stay in business;
the impact of the COVID-19 pandemic on our construction projects and on our ability to open construction sites and to secure needed labor and materials;
the impact of the COVID-19 pandemic on real estate valuations in major urban centers, such as New York;
uncertainty as to governmental responses to COVID-19;
the potential sale of certain non-core real estate assets;
the rental rates and capitalization rates applicable to the markets in which we operate and the quality of properties that we own;
the ability to negotiate and execute lease agreements with material tenants;
the extent to which we can obtain on a timely basis the various land use approvals and entitlements needed to develop our properties;
the risks and uncertainties associated with real estate development;
the availability and cost of labor and materials;
the ability to obtain all permits to construct improvements;
the ability to finance improvements;