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CORRECTING and REPLACING Reading International Announces First Quarter 2017 Results

(May 11, 2017)
  • Record First Quarter Revenues of $69.5 million
  • First Quarter EBITDA of $10.5 Million, Second Highest First Quarter on Record
  • Basic EPS of $0.13, a 30% increase over comparable quarter, tied First Quarter Record

Earnings Call Webcast was posted on our Corporate Website on Wednesday, May 10, 2017 discussing 2017 First Quarter Financial Results

CULVER CITY, Calif.--(BUSINESS WIRE)--The second, third and fourth subheadlines of the release dated May 9, 2017 have been revised.


The corrected release reads:

READING INTERNATIONAL ANNOUNCES FIRST QUARTER 2017 RESULTS


  • Record First Quarter Revenues of $69.5 million
  • First Quarter EBITDA of $10.5 Million, Second Highest First Quarter on Record
  • Basic EPS of $0.13, a 30% increase over comparable quarter, tied First Quarter Record

Earnings Call Webcast was posted on our Corporate Website on Wednesday, May 10, 2017 discussing 2017 First Quarter Financial Results

Reading International, Inc. (NASDAQ: RDI) today announced results for the first quarter ended March 31, 2017. Consolidated revenues for the first quarter of 2017 increased by 7% (or $4.7 million) primarily due to higher admissions and increased food & beverage (?F&B) revenues in our cinema businesses in the U.S. and Australia, offset by lost revenue from the closure of our Courtenay Central cinema in Wellington, New Zealand due to an earthquake in November 2016. Our Courtenay Central cinema re-opened on March 29, 2017. For the first quarter, on a local currency basis, revenues for U.S. and Australia increased by 5% and 11%, respectively. Q1 2017 Revenues represented the highest level achieved for any first quarter in our companys history.

Earnings per share (?EPS) for the quarter was $0.13, compared to prior-year quarter of $0.10. The $0.03 increase in our EPS was primarily driven by: (i) 46% increase in our segment operating income in our Australian cinema operations due to increased attendance and higher F&B revenues, enhancing our EPS by $0.06, (ii) foreign currency gain recognized on short-term intercompany loans, which increased our EPS by $0.02, and (iii) offset by a $0.05 reduction due to the temporary closure of our Courtenay Central entertainment-themed center (?ETC) in Wellington, New Zealand, as a result of the previously-mentioned earthquake.

The following table summarizes the first quarter results for 2017 and 2016:

             
Three Months Ended
% Change
(Dollars in millions, except EPS) March 31,
2017
March 31,
2016
Favorable/
(Unfavorable)
Revenue $ 69.5 $ 64.8 7 %
- US 36.9 35.0 5 %
- Australia 27.2 23.1 18 %
- New Zealand 5.4 6.7 (19 ) %
Segment operating income (1) $ 10.4 $ 9.8 6 %

Net income (2)

$ 3.0 $ 2.2 36 %
EBITDA (1) $ 10.5 $ 9.1 15 %
Adjusted EBITDA (1) $ 11.2 $ 9.1 23 %
Basic EPS (2) $ 0.13 $ 0.10 30 %

(1)

 

Aggregate segment operating income and earnings before interest expense (net of interest income), income tax expense, depreciation and amortization expense (?EBITDA) are non-GAAP financial measures. See the discussion of non-GAAP financial measures that follows.

(2)

Reflect amounts attributable to stockholders of Reading International, Inc., i.e. after deduction of noncontrolling interests.

 

?We continued to break records in the first quarter of 2017 as our revenues and operating income for the period represented the highest level achieved for any first quarter in the history of our company, said Ellen Cotter, Chair, President and Chief Executive Officer. ?During the quarter, we grew our cinema circuit and executed on our global cinema strategy, which helped drive our performance with increased attendance and higher food and beverage revenues. We are making tangible progress on our three-year business strategy to elevate the cinematic experience for our guests and the continued redevelopment of our real estate assets to drive long-term value for stockholders.

COMPANY HIGHLIGHTS

  • Operating Results. Revenues and Operating Income for the first quarter 2017 represented the highest levels achieved for any first quarter in the history of the Company.
  • Cinema activities: We continue to grow our worldwide cinema circuit
    • In March 2017, we entered into an agreement to lease an 8-screen complex with an initial term of 15 years. Located in the city of Brisbane, 7 minutes from the Central Business District and South of the Brisbane River, South City Square is a 2.1-hectare former industrial site being redeveloped into a major residential, hotel, retail and entertainment lifestyle complex by Pellicano Property and Perri Projects. Our cinema complex in this location will be one of two major anchor tenants for that approximately AU$600 million or US$458 million project. We anticipate this cinema to come online in 2019.
    • In addition, our Board has approved the development of two (2) more new leasehold cinemas in Australia and one (1) in New Zealand, which are anticipated to come online during 2019 and 2020.
    • On October 21, 2016, we opened Olino by Consolidated Theatres, our ninth theatre in Hawaii and our first to open in the state since 2001. Olino features luxurious amenities, including electric recliner seats, expansive wall-to-wall screens and pristine digital projection by Barco, the leader in digital cinema technology, and an elevated, locally inspired food and beverage menu. The theatre also features a TITAN LUXE, a premium auditorium with immersive sound by Dolby ATMOS.
    • We continue to execute our strategic priority of upgrading F&B offerings, having obtained liquor licenses for 24 of our current cinema locations in the U.S., Australia and New Zealand.
  • Real estate activities
    • Insurance Claim Settlement relating to the Earthquake Damage on our Courtenay Central Parking Building (Wellington, New Zealand) we were advised by our insurance carrier that we will be paid the policy maximum of $25 million (remaining balance to be paid is US $20 million, $5.0 million already advanced in December 2016) with respect to our claims for earthquake damage to the parking building adjacent to our Courtenay Central ETC and related business interruption. While the earthquake has slowed the redevelopment activities in progress at that location, the demolition of the parking structure has opened additional expansion opportunities for our Courtenay Central ETC.
    • Union Square Redevelopment (New York, U.S.) we secured construction financing for our Union Square property in December 2016 and entered into a guaranteed maximum price construction management agreement with an affiliate of CNY. Construction is now underway. We currently anticipate the re-developed property will be ready for retail tenant fit-out by the end of the second quarter of 2018. Retail and office leasing interest to date has been strong. This redevelopment will add approximately 23,000 square footage of rentable space to the current square footage of the building for an approximate total of 73,322 square feet of rentable space, inclusive of anticipated BOMA adjustments and subject to lease negotiations and the final tenant mix.
    • Newmarket Expansion (Brisbane, Australia) in the third quarter of 2016, we commenced the construction on our expansion project at our Newmarket shopping center in Brisbane, Australia, with a projected opening in the fourth quarter of 2017. This expansion project includes the addition of an eight-screen Reading Cinemas and approximately 10,297 square feet of additional retail space and 142 car parks. We have entered into heads of agreement to lease approximately 3,315 square feet of this new space.
    • Burwood Early Payment (Australia) the buyer of our Burwood Property has informed us that it is under contract to sell a portion of this property. Upon closing of that sale, a prepayment of $16.7 million (AU$21.8 million), representing 90% of the net sales price, becomes payable to Reading.
    • Manukau Land Rezoning (Auckland, New Zealand) in August 2016, the Auckland City Council re-zoned 64.0 acres of our 70.4 acre property in Manukau from agricultural to light industrial use. The remaining 6.4 acres were already zoned for heavy industrial use. Now that our zoning enhancement goal is achieved, we are reviewing our options with respect to the commercial exploitation of this asset. We see this property as a future value realization opportunity to us. This tract is adjacent to the Auckland Airport, which has recently been expanding towards our property.
    • Occupancy of New Headquarters Building (Culver City, CA, U.S.) during February 2017, we relocated our corporate headquarters into the 24,000 square foot Culver City office building that we purchased in April 2016. We currently use approximately 50% of the leasable area for our corporate headquarters and intend to lease, over time, the remainder to unaffiliated third parties. We purchased the property for $11.2 million in cash, financing the property in December 2016 with an $8.4 million 10-year, fixed-rate mortgage at 4.64%.
  • Corporate Matters
    • The 2017 Annual Stockholders Meeting of the Company will be held in mid-September 2017.
    • On March 2, 2017, our Board of Directors authorized Management to repurchase up to $25,000,000 of our Class A Common Stock.
    • On April 26, 2017, our Board adopted a stock ownership policy setting prescribed minimum levels of stock ownership for our directors, our chief executive officer and our senior executives at three time (3X), six times (6X) and one times (1X) base directors fees or salary (as applicable), respectively, to be measured annually by reference to trading prices at the end of each year. Covered individuals are given five years to achieve these minimum levels of stock ownership.

SEGMENT RESULTS

The following table summarizes the first quarter segment operating results for 2017 and 2016:

               
Three Months Ended
% Change
(Dollars in thousands) March 31,
2017
March 31,
2016
Favorable/
(Unfavorable)
Segment revenue

Cinema

United States $ 36,236 $ 34,058 6 %
Australia 24,958 21,004 19 %
New Zealand (reflecting Courtenay Central closure)   5,366     6,253     (14 ) %
Total $ 66,560   $ 61,315     9   %

Real estate

United States $ 586 $ 859 (32 ) %
Australia 3,586 3,311 8 %
New Zealand (reflecting Courtenay Central closure)   325     1,080     (70 ) %
Total $ 4,497 $ 5,250 (14 ) %
Inter-segment elimination   (1,603 )   (1,776 )   10   %
Total segment revenue $ 69,454   $ 64,789     7   %
Segment operating income (loss)

Cinema

United States $ 2,507 $ 2,555 (2 ) %
Australia 5,945 4,064 46 %
New Zealand (reflecting Courtenay Central closure)   641     1,071     (40 ) %
Total $ 9,093   $ 7,690     18   %

Real estate

United States $ 28 $ 70 (60 ) %
Australia 1,408 1,591 (12 ) %
New Zealand (reflecting Courtenay Central closure)   (142 )   428     (133 ) %
Total $ 1,294   $ 2,089     (38 ) %
Total segment operating income (1) $ 10,387   $ 9,779     6   %

(1)

 

Aggregate segment operating income is a non-GAAP financial measure. See the discussion of non-GAAP financial measures that follows.

 

Cinema Exhibition

Cinema operating income for the first quarter 2017 increased 18% or $1.4 million, to $9.1 million over the prior-year quarter, primarily driven by higher admission and F&B revenues and the favorable foreign currency movements on our Foreign Operations. These were offset by the temporary closure of our Courtenay Central Cinemas in Wellington, New Zealand due to the earthquake. Refer below for the operating results by country:

  • First quarter 2017 revenue in the U.S. increased by 6%, or $2.2 million, primarily driven by increased attendance (including the impact of the opening of our Olino by Consolidated Theatres in Hawaii in October 2016), an increase in average ticket prices and higher F&B revenues.
  • Australia cinema revenue increased by 19%, or $4.0 million, primarily due to a significant increase in attendance, more appealing film slate and favorable foreign currency movements.
  • In New Zealand, cinema revenue decreased by 14%, or $887,000, mainly due to lower attendance due to the temporary closure of the Courtenay Central Cinemas, offset to some extent by the favorable impact from stronger foreign exchange rates.

The top three grossing films for the first quarter 2017 were ?Beauty and the Beast, ?Logan, and ?Lion representing approximately 21% of Readings worldwide admission revenues for the quarter. The top three grossing films in the first quarter 2016 for Readings worldwide cinema circuits were ?Deadpool, ?Star Wars: The Force Awakens, and ?Batman v Superman: Dawn of Justice, which represented approximately 28% of Readings admission revenues for the first quarter of 2016.

Real Estate

Real estate segment operating income for the first quarter 2017 decreased 38% or $795,000 compared to 2016, to $1.3 million, primarily driven by lower property revenues in New Zealand due to the closure of our Courtenay Central ETC for most of the quarter.

CONSOLIDATED AND NON-SEGMENT RESULTS

The first quarter consolidated and non-segment results for 2017 and 2016 are summarized as follows:

             
Three Months Ended
% Change
(Dollars in thousands)

March 31,
2017

March 31,
2016

Favorable/
(Unfavorable)
Segment operating income $ 10,387 $ 9,779 6 %
Non-segment income and expenses:
General and administrative expense (4,753 ) (4,991 ) 5 %
Interest expense, net (1,860 ) (1,875 ) 1 %
Gain on sale of assets - 393 (100 ) %
Other   970     149   551 %
Total non-segment income and expenses $ (5,643 ) $ (6,324 ) 11 %
Income before income taxes 4,744 3,455 37 %
Income tax expense   (1,703 )   (1,231 ) (38 ) %
Net income $ 3,041 $ 2,224 37 %
Less: net income (loss) attributable to noncontrolling interests   12     (2 ) 700 %
Net income attributable to RDI common stockholders $ 3,029   $ 2,226   36 %
 

First Quarter Results

Net income attributable to RDI common stockholders for the first quarter 2017 increased by $803,000, or 36%, to $3.0 million, mainly attributable to (i) an increase in our segment operating income due to increased attendance in our cinema businesses in the U.S. and Australia, (ii) the foreign currency gain recognized on short-term intercompany loans, and (iii) offset by the impact of the closure of our Courtenay Central ETC as a result of the November 2016 earthquake.

The key non-segment factors affecting our consolidated results for the First Quarter 2017 are discussed in more detail below:

  • General and administrative expense for the three months ended March 31, 2017 compared to the same period of the prior year decreased by 5%, or $238,000. This decrease mainly relates to the additional expenses paid in 2016 in connection with the 2015 year-end audit. Legal expenses incurred on the Derivative Litigation and the Cotter Employment Arbitration during the quarter ended March 31, 2017 totaled $645,000. In the same quarter of 2016, Derivative Litigation expense was reimbursed from the Companys Directors and Officers (?D&O) Insurance Program.
  • Net gain on sale of assets for the three-month period March 31, 2016 represents the gain from the final closing of the second sale agreement of the Taupo property in New Zealand in the amount of $393,000 (NZ$585,000).
  • Income tax expense for the three months ended March 31, 2017 increased by $472,000 or 38% compared to the prior-year three-month period mainly due to significant increase in pre-tax income.

OTHER FINANCIAL INFORMATION

Balance Sheet and Liquidity

Total assets increased to $410.4 million at March 31, 2017, compared to $405.8 million at December 31, 2016, primarily driven by (i) increases in our operating and investment properties during the quarter, and (ii) foreign currency movements of the asset accounts on our Australian and New Zealand operations based on the relative strengthening of the currencies on these economies to the U.S. dollar.

Cash and cash equivalents at March 31, 2017 were $11.0 million, including $7.2 million in the U.S., $2.6 million in Australia, and $1.2 million in New Zealand. We manage our cash, investments and capital structure so we are able to meet short-term and long-term obligations for our business, while maintaining financial flexibility and liquidity.

The table below demonstrates the changes in our financing arrangements, working capital position and other relevant information addressing our liquidity for the quarter ended March 31, 2017 and preceding four years:

                   
First Quarter Year Ended December 31
($ in thousands) 2017 2016 2015 2014 2013
Net Cash from Operating Activities $ 311 $ 30,188 $ 28,574 $ 28,343 $ 25,183
Total Resources (cash and borrowings)
Cash and cash equivalents (unrestricted) $ 11,031 $ 19,017 $ 19,702 $ 50,248 $ 37,696
Unused borrowing facility 115,580 117,599 70,134 45,700 19,400
Restricted for capital projects(1) 62,102 62,024 10,263 -- --
Unrestricted capacity 53,478 55,575 59,871 45,700 19,400
Total resources at period end 126,611 136,616 89,836 95,948 57,096
Total unrestricted resources at period end 64,509 74,592 79,573 95,948 57,096
Debt-to-Equity Ratio
Total contractual facility $ 268,944 $ 266,233 $ 207,075 $ 201,318 $ 187,860
Total debt (gross of deferred financing costs) 153,364 148,535 130,941 164,036 168,460
Current 587 567 15,000 38,104 75,538
Non-current 152,777 147,968 115,941 125,932 92,922
Total book equity 154,991 146,615 138,951 133,716 123,531
Debt-to-equity ratio 0.99 1.01 0.94 1.23 1.36
Changes in Working Capital
Working capital (deficit) $ 19,431 $ 6,655 $ (35,581 ) $ (15,119 ) $ (75,067 )
Current ratio 1.34 1.10 0.51 0.84 0.43
Capital Expenditures (including acquisitions) $ 8,478 $ 49,166 $ 53,119 $ 14,914 $ 20,082

(1)

 

This relates to the construction facilities specifically negotiated for: (i) Union Square redevelopment project, obtained in December 2016, and (ii) New Zealand construction projects, obtained in May 2015.

 

Below is a summary of the available credit facilities as of March 31, 2017:

                   
As of March 31, 2017
(Dollars in thousands)

Contractual
Capacity

Capacity
Used

Unused
Capacity

Restricted for
Capital Projects

Unrestricted
Capacity

Bank of America Credit Facility (USA) $ 55,000 $ 39,000 $ 16,000 $ -- $ 16,000
Bank of America Line of Credit (USA) 5,000 1,000 4,000 -- 4,000
Union Square Construction Financing (USA) 57,500 8,000 49,500 49,500 -
NAB Corporate Term Loan (AU) (1) 50,793 31,316 19,477 -- 19,477
Westpac Corporate Credit Facility (NZ) (1)   37,105   10,502   26,603   12,602   14,002
Total $ 205,398 $ 89,818 $ 115,580 $ 62,102 $ 53,478

(1)

 

The borrowings are denominated in foreign currency. The contractual capacity and capacity used were translated into U.S. dollars based on the applicable exchange rates as of March 31, 2017.

 

The $62.1 million representing borrowings restricted for capital projects is composed of the $49.5 million and $12.6 million (NZ$18.0 million) unused capacity for Union Square development uses and construction funding for New Zealand operations, respectively.

Our overall global operating strategy is to conduct business mostly on a self-funding basis (except for funds used to pay an appropriate share of our U.S. corporate overhead). However, we may decide to move funds between jurisdictions where circumstances merit such action. For example, given the interest savings generated from using funds through the repayment of intercompany loans by our Australian subsidiary to finance a portion of our Union Square redevelopment project rather than paying for high interest mezzanine loans (which will yield overall notional all-in interest savings of approximately 10.0%), we moved $20.0 million of our intercompany loan to short-term from long-term category. Effectively, we sourced our Union Square financing needs from our available credit line in Australia and moved it from our Australian subsidiary to the U.S. as a repayment of intercompany loans. As a result, we recognized a gain of $825,000 representing the foreign currency movement on the intercompany advances based on the relative strengthening of the Australian dollar to the U.S. dollar for the quarter ended March 31, 2017.

Non-GAAP Financial Measures

This earnings release presents aggregate segment operating income, and EBITDA, which are important financial measures for the Company, but are not financial measures defined by U.S. GAAP.

These measures should be reviewed in conjunction with the relevant U.S. GAAP financial measures and are not presented as alternative measures of EPS, cash flows or net income as determined in accordance with US GAAP. Aggregate segment operating income and EBITDA as we have calculated them may not be comparable to similarly titled measures reported by other companies.

Aggregate segment operating income we evaluate the performance of our business segments based on segment operating income, and management uses aggregate segment operating income as a measure of the performance of operating businesses separate from non-operating factors. We believe that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Companys portfolio of business separate from non-operational factors that affect net income, thus providing separate insight into both operations and the other factors that affect reported results. Refer to ?Consolidated and Non-Segment Results for a reconciliation of segment operating income to net income.

EBITDA we present EBITDA as a supplemental measure of its performance, which is commonly used in our industry. We define EBITDA as net income adjusted for interest expense (net of interest income), income tax expense, depreciation and amortization expense, and an adjustment of interest expense, depreciation, and amortization for discontinued operations, if any. EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with U.S. GAAP). We have included EBITDA in this Earnings Release, as we believe that it provides management and our investors with additional information necessary to properly measure our performance and liquidity, estimate our value and evaluate our ability to service debt.

Adjusted EBITDA  using the principles, we consistently apply to determine our EBITDA, we further adjusted the EBITDA for a certain item we believe are appropriate adjustable item, described as follows:

  • Legal expenses relating to the derivative litigation and James J. Cotter, Jr. employment arbitration  while we started to incur expenses in relation to these legal matters in 2015, we believe that the majority of these costs were thrust upon the Company as it became necessary to vigorously defend the Companys position in the derivative litigation and to resolve Mr. Cotter, Jr.s claims relating to his termination. For this reason, these costs should also be treated as non-recurring in nature and accordingly, an adjustable item for purposes of determining our Adjusted EBITDA.

We have not made adjustments for any gains relating to property sales in line with our overall business strategy that any time, we may decide to dispose of any property when we believe that an asset had reached the highest value that we could reasonably achieve without investing substantial additional sums for land use planning, construction and marketing.

Reconciliation of EBITDA to net income is presented below:

       
Three Months Ended
March 31 March 31
(Dollars in thousands) 2017 2016
Net Income $ 3,029 $ 2,226
Add: Interest expense, net 1,860 1,875
Add: Income tax expense 1,703 1,231
Add: Depreciation and amortization   3,934   3,808
EBITDA $ 10,526 $ 9,140
Adjustments for:
Legal expenses relating to the derivative ligation and Cotter employment arbitration   645   --
Adjusted EBITDA $ 11,171 $ 9,140
 

Contacts

Reading International, Inc.
Dev Ghose, Executive Vice President & Chief Financial Officer
Andrzej Matyczynski, Executive Vice President for Global Operations
(213) 235-2240


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