Reading International (RDI)'s Q2 2015: Set Records, Full Of News by Andrew Shapiro, Seeking Alpha
Summary
Movie theater operator and real estate developer, Reading International just announced the best revenue, operating income, and EBITDA in the company’s history.
Reading continues its operational growth, de-leveraging a conservative balance sheet and achieving milestones in the redevelopment and monetization of the company’s undervalued, underutilized real estate.
As Reading converts developments into cash flow, appreciation in the real estate becomes easier for investors to value, thus closing the substantial “value gap” in the company’s share price.
Reading’s cinema segment continues its growth with several new builds planned in both the US and the New Zealand/Australia region.
An escalating fight amongst Cotter family siblings over their father’s estate and voting control of Reading presents new opportunities to unlock value.
Since my June 2015 article on global movie theater operator and real estate developer, Reading International (see "In A Year Of Major Events For Reading International, Wanda's Purchase Of Hoyts Turns Our Head"), achievements continue. The company announced very strong Q2 2015 operating results. According to Reading's Q2 2015 earnings press release (including emphasis), "Revenue, operating income, and earnings before interest, taxes and depreciation, and amortization ("EBITDA") for the second quarter represent the best results in the history of the Company."
Not only did Reading deliver strong operating results in Q2, but the company continued to improve its conservative balance sheet with a substantial reduction of net debt to only $81.2MM after completing the major sale of the company's Moonee Ponds development parcel in Melbourne, Australia. Additionally, Reading's New Zealand facilities and its Union Square mortgage were refinanced during the quarter with increased capacities while still extending maturity dates and lowering interest costs.
Last year, Reading sold its very large undeveloped Melbourne parcel, Burwood Square for AUD$65MM in an installment sale. As of Reading's June 30, 2015 balance sheet, despite the sale having closed and ownership and title transferred to the REIT buyer, AUD$58.5MM of proceeds to be collected from this sale are listed as "Land Held For Sale," which will further pay down Reading's declining debt levels.
A $10MM stock buyback program Reading announced after its 2014 annual meeting continues with several hundred thousand shares having been repurchased to date.
Reading Real Estate Development Milestones During Q2 2015
On August 6, 2015, Reading provided an update on the development progress of four separate real estate parcels/projects in the US, New Zealand and Australia.
Union Square Theatre (Manhattan New York City): In March 2015, Reading obtained New York Landmarks Commission authorization to redevelop the property with approximately 23,000 additional square feet of rentable space to the current 46,000 square foot building. This greatly enhanced the project's prospective value. [See photo, below] Reading recently entered into a Development Management Agreement with Edifice Real Estate Partners, LLC, to assist in the supervision and administration of the project and also entered into a real estate brokerage agreement with Newmark Grubb Knight Frank to serve as exclusive marketing agent. Reading intends to commence development in Q1 2016.
Cinemas 1, 2 & 3 (Manhattan, New York City): Reading recently received the consent of Sutton Hill LLC's minority member (a Cotter family entity) to the redevelopment of the property. Reading's current plans are to redevelop the property as a mixed use retail and residential and/or hotel property.
New Market Centre expansion and multiplex (Brisbane, Australia): Reading received local Planning Council approval in June 2015 for design and construction of an eight-screen cinema complex. The approval also includes 10,000 square feet of additional specialty retail space to be located below the theater and additional mezzanine level parking. Reading intends to begin construction in Q2 2016 for projected opening Q4 2017 at an estimated total cost of $27.0 million (AU$35.0 million)
Courtenay Central entertainment center expansion (Wellington, New Zealand): Reading received local City Council planning approval in May 2015 for a supermarket development. Note, the previously announced Countdown supermarket development with an estimated cost of $11.5 million (NZ$17.0 million) had been delayed by severe damage to car park caused from Wellington earthquake.
In an August 2013 Seeking Alpha article on Reading, I discussed a valuation of at least $100MM for just the two above-mentioned New York City redevelopment projects, Cinema 1,2 & 3 and Union Square, combined. Since 2013, New York City real estate values have continued to skyrocket and Reading's plan to further redevelop these parcels creates additional long-term value for Reading and its shareholders. Any partial or complete sale of these properties would be reflected more immediately in Reading's stock price. (See an August 13, 2012 Barron's article, entitled "Popcorn and Property" [found here if free access is still operable].)
Reading's Growing Global Cinema Business Not Fairly Valued In Stock Price
While RDI's share price does not adequately reflect the underlying value of the company's geographically diverse real estate assets. My recent Seeking Alpha article, entitled "In A Year Of Major Events For Reading International, Wanda's Purchase Of Hoyts Turns Our Head, discussed an estimated $1.95MM per-screen valuation Wanda paid for large Australian/New Zealand exhibitor, Hoyts Group. Such a comparable valuation, in a region where Reading is the 4th largest movie exhibitor in Australia and 3rd largest New Zealand, right behind Hoyts, implies a $12-$14/share value (RDI's current stock price) for Reading's Aussie/NZ cinema segment alone. sizable undervaluation of Reading's overall cinema assets in that market and the United States. This cinema segment undervaluation is above and beyond the sizable appreciation embedded in Reading's global real estate cited in my prior Seeking Alpha articles on Reading.
Reading has started the development of several new 8-plex cinemas in New Lynn, (Auckland) NZ, West Oahu, Hawaii, Washington, DC's Union Market and, as mentioned above, at New Market Centre in Brisbane, and the company is also repositioning a multiplex into a luxury Angelika Film Center in San Diego, CA.
At present prices for RDI shares, Reading's Aus/NZ real estate (including the proceeds being received for the sale of Burwood Square), Reading's US real estate (including the embedded appreciated value in both Union Square and Cinemas 1,2&3) and Reading's growing cinema operations are not presently fully valued in the price for RDI shares.
There have been two articles written on Reading by other authors over the past year, one on Value Investors Club in November, 2014 and another, on Seeking Alpha in March entitled, "Reading International Prepares To Unlock Manhattan Real Estate Value." They assigned values for RDI at $23-$26/share, and $20-22/share, respectively, prior to recent announcements and achievements. Perhaps these authors would now value RDI shares
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