Reading Cinema: Who is Wellington council wanting to underwrite?

Wellington City Council is planning to fund redevelopment of the Reading Cinema building on Courtenay Place, which has been deemed at-risk in the event of an earthquake. Photo / Mark Mitchell

Reading International, the cinema operator seeking a $32 million land deal with Wellington City Council, has been reduced to microcap status by fallout from the Covid-19 pandemic and is offloading real estate assets to cope.

The company, which has the majority of its operations in the United States and Australia, was savaged by delayed Hollywood productions and pandemic restrictions that shuttered cinemas for months and is now facing a financing crunch after interest rates soared to the highest levels in decades.

Reading has had a presence in New Zealand since 1997 and now runs 67 screens across 11 locations. Its New Zealand cinemas last year accounted for 7 per cent of the company’s global box-office revenues.

Its shares this week were trading on the Nasdaq for US$1.82, a precipitous 90 per cent decline from 2019, and it now has a market capitalisation of just US$38m.

Non-voting Reading International shares have declined 90 per cent in value since the pandemic. Source / Nasdaq

The company’s 2022 annual report, with its financial position having deteriorated further since, described itself as a “microcap”. It has long been running working capital deficits for years.

The collapse in share price now sees only one stock analyst, Chad Beynon of Macquarie International, continuing to cover the company.

From New York, Beynon said the global cinema industry had not - unlike most consumer industries - bounced back post-pandemic.

“Attendance levels are about 75 per cent of what they were pre-pandemic ... the underlying fundamentals of this business haven’t been great,” he said.

Macquarie International’s opinion on Reading shares is neutral.

In 2019, Reading reported revenues of US$277m. The following year, amid lockdowns and a freeze on film productions, that number dropped to just $78m and has still not yet recovered. For the past four years, Reading has been engaged in a push to offload real estate assets - including a $77m industrial site in South Auckland sold in 2021 - to both cover pandemic losses and reduce hundreds of millions of dollars of debt which are exposed to the surge in interest rates.

According to filings with the Securities and Exchange Commission, its most recent balance sheet covering the September quarter shows a debt to equity ratio of almost five. In November, it refinanced its $13.8m facility with Westpac NZ.

In a presentation to shareholders at the company’s annual general meeting in December, Reading was frank in its objectives in 2024 to further its sell-down and “strategically monetise certain real estate assets to reduce our debt and improve our liquidity”.

A slide from Reading International's presentation to shareholders in December shows the company is clear-eyed about its challenges. Source / SEC filings

The development potential of Courtenay Central, a cinema and retail complex, as well as two sites presently used for car parking on Wellington’s “golden mile”, is highlighted in the presentation and the property is not one of those flagged for sale.

The complex has been shuttered since 2019 over concerns about its ability to withstand earthquakes.

Wellington City Council is proposing to buy the land from under the site for $32m, with Reading given a buy-back option and the proceeds to be used to redevelop the site.

The deal has attracted criticism, including from some councillors, who see it as a risky and precedent-setting corporate hand-out.

Beynon said Courtenay Central was considered by Reading to be a key asset and its recent past and future was a “major talking point” among shareholders.

“In Wellington, with the earthquake and position there, they’ve lost of lot of money. They’re very positive on what the property is worth, but it’s been this elongated story for the past several years,” he said.

As a hybrid business focused on real estate and cinemas, and the synergies between them, Reading would seem a perfect fit for Wellington.

The bones of Reading date from 1833 when it started as a Pennsylvania-based railroad company. The train and track business was acquired by a competitor in 1976, with residual real estate assets carved off and later acquired by Los Angeles lawyer James Cotter, who used them to finance his cinema business.

A merger with another Cotter-owned entity in 2001 saw the company - by then having divested most of its railway-related real estate and built up chains of cinemas in the United States, Australia and New Zealand - achieve a backdoor listing on to the Nasdaq as Reading International (RDI).

The death of Cotter in 2014, aged 76, triggered a crisis worthy of Succession. A late change to his will, just months before his passing, put son James Jr in charge before his sisters Ellen and Margaret took the matter to court.

California’s Superior Court in Los Angeles ruled the late will change had seen Cotter Sr subject to “undue influence”, noting just hours after it was signed, hospital staff caring for the cancer-stricken mogul determined he was unable to consent to a medical procedure.

After the dust and cost awards against James Jr had settled, the sisters were left in charge. A bid by outside investors to take over the company for US$444m was rejected, and perhaps regretted in hindsight, and Margaret is now chairwoman of the board and in control of a majority of voting shares, while Ellen is the chief executive officer.

Reading’s 2022 annual report shows that year Ellen was paid US$1.4m and owned 12.3 per cent of the company’s common stock, while Margaret (who also serves as executive vice-president of New York real estate) earned US$693,000 and held 12.1 per cent of shares.

The pair, both trained lawyers, have worked in the family business for decades and are reported by the Post to have met with Wellington Mayor Troy Whanau to discuss Courtenay Central on October 4.

A Herald request to Reading to interview Ellen Cotter about the company’s prospects and plans, both internationally and at Courtenay Central, went unanswered this week.

Matt Nippert is an Auckland-based investigations reporter covering white-collar and transnational crimes and the intersection of politics and business. He has won more than a dozen awards for his journalism - including twice being named Reporter of the Year - and joined the Herald in 2014 after having spent the decade prior reporting from business newspapers and national magazines.