Thank you for joining Reading International's Earnings Call to discuss our 2021 Second Quarter Results. My name is Andrzej Matyczynski, and I am Reading's Executive Vice President of Global Operations.
With me, as usual, are Ellen Cotter, our President and Chief Executive Officer; and Gilbert Avanes, our Executive Vice President, Chief Financial Officer and Treasurer. Before we begin the substance of the call, I will just run through the usual caveats.
In accordance with the safe harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that will be addressed in this earnings call may constitute forward-looking statements.
Such statements are subject to risks, uncertainties and other factors that may cause our actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are clearly set out in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements.
In addition, we will discuss non-GAAP financial measures on this call. Reconciliations and definitions of non-GAAP financial measures, which are segment operating income, EBITDA and adjusted EBITDA, are included in our recently issued 2021 second quarter earnings release on the company's website.
We have adjusted, where applicable, the EBITDA items we believe to be external to our business and not reflective of our cost of doing business or results of operation.
Such costs include legal expenses relating to extraordinary litigation and any other items that can be considered non-recurring in accordance with the two-year SEC requirement for determining an item is non-recurring, infrequent or unusual in nature. We believe adjusted EBITDA is an important supplemental measure of our performance.
In today's call, we also use an industry-accepted financial measure called theater level cash flow, TLCF, which is theater level revenue less direct theater level expenses. We also use a measure referred to as F&B spend per patron, which is a key performance indicator for our cinemas.
The F&B spend per patron is calculated by dividing a cinema’s revenues generated by food and beverage sales by the number of admissions at that cinema. Please note that our comments are necessarily summary in nature, and anything we say is qualified by the more detailed disclosure set forth in our Form 10-Q and other filings with the U.S.
Securities and Exchange Commission. So with that behind us, I’ll turn it over to Ellen, who will review our 2021 second quarter results and discuss our strategies for navigating Reading through the COVID-19 pandemic to the post-COVID era; followed by Gilbert, who will provide a more detailed financial review.
Ellen?.
No Way Home, Sing 2 and West Side Story. The specialty film lineup to support our Angelika brand is starting to fill in nicely in Q3 and Q4.
Films like The Eyes of Tammy Faye, The French Dispatch, Belfast, Spencer, Nightmare Alley, House of Gucci, Parallel Mothers and Cyrano, each currently have exclusive theatrical windows and all look like they'll resonate with critics and audiences.
Similar to what we experienced thus far in 2021, we expect that the pent-up demand to get out of the house and experience a popcorn movie or quality specialty film and a shared cinema environment will benefit each of these theatrical releases. Now let's turn to our global real estate business.
Reflecting the strength of our dual and diversified business strategy, our real estate operations continue to be less impacted by COVID-19 than our cinema business. Our second quarter 2021 total real estate revenue increased by 50% to $3.4 million compared to second quarter of 2020.
However, we did report a second quarter 2021 operating loss of $1.1 million, which increased 31% over the second quarter of 2020. That increased second quarter operating loss was driven by a few key factors. As a result of 44 Union Square being completed, our income statement now reflects depreciation in certain operating expenses. Our U.S.
live theaters continue to be closed by government order for all of Q2 of 2021. And we abated intercompany rent revenue for some of our fee interest cinemas. A few key points about our increased Q2 2021 real estate revenues.
In Australia, our real estate revenues increased from Q2 2020 as a result of fewer abatements being issued to third-party tenants in the second quarter of 2021. A de minimis amount of COVID rent relief was granted to third-party tenants during the second quarter of 2021.
Q2 2021 reflected three months of rent on a straight-line basis from our Culver City office tenant, while Q2 2020 only reflected rent on a straight-line basis from May 27, 2020. In New Zealand, there were no COVID-related rent abatements provided to any third-party tenants during the second quarter of 2021.
And the sale of Auburn/Redyard was completed on June 9, 2021, which meant that our real estate revenues reflected no rental revenue from that closing date. As of today, in Australia and New Zealand, even with the recent Delta lockdowns in Australia, 97% of our third-party tenants are open.
The Australian code of conduct, which is the legislatively mandated framework to assist tenants impacted by the global pandemic, officially came to an end in most Australian states at the end of March of 2021. The official termination of that code signaled the commencement of rent deferral payments over a 24-month period.
So our Australian property team will be managing these deferral payments over the next couple of years. However, in light of the recent Delta lockdowns, we've recently been advised that the Victorian Code of Conduct will be reinstated up until January of 2022.
During the third quarter of 2021, to date, we have not issued any further abatements or deferrals to our three third-party tenants in Victoria. Only two abatements provided during the second quarter, which are minimal. And we've not yet heard about whether the Queensland legislative code of conduct will be reinstated.
I'll note again that on July 20, STOMP resumed public performances at our Orpheum theater in New York City. Audible, an Amazon company, continues to license our Minetta Lane Theatre in New York City, and we anticipate that the Minetta will resume public performances in October of 2021.
Now let's turn to the status of our key capital projects, beginning with our 44 Union Square project in New York City. We've been in discussions with national retail tenants about leasing space at 44 Union Square.
Well, no assurances can be given that we'll be able to lease the space on acceptable terms in the near-term, we remain confident in the long-term viability of New York City as one of the world's most dynamic cities for commercial real estate.
We believe that our property is particularly desirable given its brand of the location, Union Square, which is one of New York City's biggest transit hubs.
We also cannot offer any assurance as to when the building will be fully leased, and we would not want to quantify the dollar per square foot expectation as rents in that market are currently fluctuating. However, we do believe that the market is strengthening.
In July of 2021, 44 Union Square was selected as a jury and popular choice winner in the architecture and collaboration concept category of the Architizer A+ Awards, which are the world's largest awards program for architecture and building products. Regarding our Australian developments.
As we've mentioned in early June 2021, we completed the sale of our Auburn/Redyard Center in New South Wales. During Q2 2021, there were no other material capital developments in our Australian portfolio. Except I mentioned that in June, we were proud to welcome Live Fire one of Townsville first barbecuing restaurants to our Cannon Park development.
Turning to our real estate assets and Wellington, New Zealand.
As I mentioned previously, we continue to work through development plans related to our Wellington assets, in light of challenges and obstacles presented not only by the COVID-19 pandemic but also the seismic issues besetting our Courtenay Central building and the necessary demolition of our nine-story parking garage due to the 2016 Kaikōura earthquake.
Despite the hurdles posed by pandemic and natural forces, our management team continues to maintain a focus on the restoration and renewal of Courtenay Central as an integrated component of our overall holdings in Wellington.
We're quite fortunate to be right across the street from the beautiful state-of-the-art Wellington Convention and Exhibition Center named Takina, which is slated to open in 2023. Takina will join the district that's already home to the National Te Papa Museum and the St. James Theater, which is nearing a complete seismic upgrade.
Working together with the various stakeholders in Wellington, we continue to want to be part or be a key part of the ongoing activation and reactivation of the downtown entertainment district of this world-class city.
Our most recent 10-Q filing details an arbitration filed against us by GDL, the parent company of Countdown, the supermarket tenant with whom we signed an agreement to lease in 2013.
While we intend to vigorously defend our position with respect to this agreement to lease, we've been having and are continuing to have, without prejudice discussions, as to possible alternatives pursuant to which a full-service supermarket could be developed and leased to Countdown. That wraps up my business overview for the second quarter of 2021.
In conclusion, let me reiterate the strength and commitment to our two business/three country diversified business strategy.
As I mentioned previously, we determined that it would be in the best interest of our company and stockholders not to dilute our stockholders or mortgage our future with high-priced debt and elected to monetize certain real estate assets, which we believe had achieved their highest level of value without significant additional capital being invested.
While we've used the sales proceeds to preserve other assets, fund business operations and pay down debt, we anticipate when conditions normalize, funds will flow back into the real estate part of our business.
Our retained real estate assets, 44 Union Square; Cinemas 1, 2 and 3 in New York; Courtenay Central in Wellington; Newmarket Village in Brisbane, Cannon Park in Townsville; and our Viaduct properties in Philadelphia, all continue to offer substantial opportunities to create future value for our stockholders.
Before I turn it over to Gilbert for a financial review of the second quarter of 2021, on behalf of Margaret, our Board and myself, we again want to extend our sincerest appreciation to the global Reading team. I feel like we can't say it enough.
Thank you to all those executives and employees who have worked with added true breaks since March of 2020. While we know we're not out of the woods just yet, it's the daily efforts of the Reading team under extraordinary circumstances for the last 17 months that have put this company in its various operating divisions on a stronger path forward.
With that, I'll turn it over to Gilbert..
Thank you, Ellen. Consolidated revenues for the quarter ended June 30, 2021, increased by $32.6 million to $36 million when compared to the same period in the prior year.
This increase was attributable to the majority of our theaters operating during the second quarter of 2021 compared to the second quarter of 2020, when most of our global cinema remained closed due to the initial COVID-19 shutdown.
These positive results were further supported by the release of several major firms in the second quarter of 2021, which collectively led to an increase in attendance compared to the second quarter of 2020. These results were further enhanced by the strengthening of Australian and New Zealand dollar.
During the second quarter of 2021, the average Australian and New Zealand dollar strengthened against the U.S. dollar by 17.1% and 15.7%, respectively, compared to the same period last year. Revenue for the six months ended June 30, 2021, increased by $4.7 million to $57.3 million when compared to the same period in the prior year.
This increase was attributable to the majority of our theaters operating during the first half of 2021, with occupancy restrictions in place compared to the same period in 2020 when most of our global cinema closed in late March and remained closed through the second quarter of 2020.
Net income attributable to RDI common stockholders for the second – for the quarter ended June 30, 2021 increased by $45.4 million to $22.7 million when compared to the same period in the prior year. Basic earnings per share increased by $2.08 to $1.04 for the quarter ended June 30, 2021, compared to the quarter ended June 30, 2020.
These increases are primarily from the gain on sale of assets related to our Auburn/Redyard and Royal George properties in June of 2021.
Also due, in part, to the large scale COVID-19 vaccination rollout in the U.S., we continued to experience overall industry improvement in recent months, with the majority of our cinemas now reopened and major studio once again releasing [indiscernible] songs.
For the six months ended June 30, 2021, Net income attributable to RDI common stockholders increased by $70.2 million to $41.7 million compared to the same period in the prior year. Basic earnings per share for the six months ended June 30, 2021 increased by $3.22 to $1.91 compared to the six months ended June 30, 2020.
These increases are largely due to the gain on sales related to our Manukau, Coachella, Auburn/Redyard and Royal George properties.
Non-segment G&A expense for the quarter ended June 30, 2021, decreased by 4% or $0.02 million or $3.7 million compared to the quarter ended June 30, 2020, due to reduced legal fees and professional and outside services related cost.
These decreases was partially offset by strengthening of the average Australian and New Zealand dollars against the U.S. dollars.
Non-segment G&A expense for the six months ended June 30, 2021, decreased 5% or $0.04 million to $7.8 million compared to the six month ended June 30, 2020 due to reduced legal fees, professional and outside services related costs and corporate airfare and travel as a result of COVID-19.
Income tax expense for the quarter ended June 30, 2021, increased by $7.1 million compared to the equivalent prior year period while income tax expense. For the six months ended June 30, 2021 increased by $17.9 million compared to the equivalent prior year period.
The change between 2021 and 2020 is primarily related to the increase in pretax income in 2021, which was due to our gain on sale of assets. For the second quarter of 2021, our adjusted EBITDA increased by $54 million compared to the same prior year period to an adjusted EBITDA of $37.1 million.
For the six months ended June 30, 2021 our adjusted EBITDA increased by $92.4 million to $73.8 million compared to the six months ended June 30, 2020. These increased were primarily the result of our gain on sale of our real estate assets. Shifting to cash flow.
For the six months ended June 30, 2021 net cash used in operating activities decreased by $17.1 million, to net cash used of $6 million, when compared to the same prior year period.
This was primarily driven by $34.5 million increase in net change in operating assets and liabilities primarily resulting from rent deferrals, offset by a decrease in cash inflow from operating activities of $17.4 million.
Cash provided by investing activities during the six months ended June 30, 2021 increased by $144.2 million to $130.2 million, when compared to the same period in 2020.
This increase is mainly attributable to $141.4 million in proceeds mainly from monetization of Manukau, Coachella, Auburn/Redyard, Royal George and a $9.5 million decrease in capital expenditures. Cash used in financing activities during the six months ended June 30, 2021, was $36.8 million.
The increase is primarily due to repayment of $40.6 million from our construction loan secured by our 44 Union Square property, $15.7 million or AUD20 million from our revolving corporate market loan facility with NAV; $374,800 or AUD500,000 related to scheduled pay down or the $2.2 million or AUD3 million drawdown allowed for the completion of Reading Cinema Jindalee, AUD11.2 million or NZD16 million for our loan with Westpac and $6.2 million for our revolving credit facility with Bank of America.
Offset by new loan facility with Emerald Creek Capital for the funding of our 44 Union Square property in Manhattan of which $43 million was immediately drawn. Turning now to our financial position. Our total assets on June 30, 2021 were $732.4 million compared to $690.2 million at December 31, 2020.
This increase was primarily driven by $84.9 million increase in cash and cash equivalent primarily due to monetization of $139.3 million worth of real estate assets in the first six months of 2021. Offset by decrease in land and property held for sale and net operating property due to the sale off our assets.
On June 30, 2021, our total outstanding borrowings were $252.7 million compared to $285 million on December 31, 2020. Our cash and cash equivalent as of June 30, 2021, where $111.8 million, which includes approximately $15.5 million in our U.S. operations; $65 million in our Australian operation; and $31.3 million in our New Zealand operations.
During the second quarter, as our cinemas have reopened and certain real estate assets have been monetized, a portion of these proceeds have been used to pay down debt or to satisfy our outstanding obligations.
Into the second quarter of 2021 we paid down $4.9 million on the Bank of America revolving credit facility, bringing the balance to $45 million, which now has a total availability of $10 million, which can be drawn under this facility.
On May 7, 2021 we repaid $11.2 million or NZD16 million to Westpac, which represents a permanent reduction in this facility.
On June 9, 2021 as part of our amended revolving corporate market loan facility with NAV $15.7 million or AUD20 million off the net sale proceeds of Auburn/Redyard Shopping Center were used to pay down the facility and permanently reduced the availability under the line.
Regarding our December 29, 2020 increase of AUD3 million for our NAB revolving corporate market loan facility to fund the completion of our recently open cinema in Jindalee, Queensland. We repaid the first installment of AUD500,000 on April 30, 2021, which was also a permanent reduction in the facility.
And these semiannual repayment will continue every six months until fully repaid on October 31, 2023. Total fully drawn NAB facility at June 30, 2021 was AUD102.5 million. Further, our bank loan with Bank of America, NAB and Westpac requires that our company comply with certain covenants.
Generally speaking, we have good relationship with our lenders and believe they understand the current economic environment and recognize, we are doing everything we can to deliver on our strategic priorities.
On June 8, 2021, we obtained a waiver from Westpac which temporarily suspended the testing of certain covenant tests, which through June 30, 2021. As of June 30, 2021, we were in compliance with all our covenants under these loans.
As we have previously mentioned, on May 7, 2021, we closed the new three year 55 million loan facility with Emerald Creek capital – 44 Union Square property of the 55 million, 43 million was immediately drawn, which includes cash reserves for interest, real estate and in existing mechanics loan.
As we continue to focus on preserving our liquidity, we did not repurchase any of our shares in the second quarter of 2021. With that, we’ll now turn it over to Andre..
Thanks, Gilbert. But first, I'd like to thank our stockholders for forwarding questions to our Investor Relations e-mail. We do appreciate these questions coming through to us.
In addition to addressing some of your questions in Ellen's discourse, we've also compiled a set of questions and answers, representing the most common questions and recurring themes e-mailed to us.
Our first question is regarding our liquor licenses, according to your 10-Q as of June 30, 2021, you have pending applications for additional liquor licenses for 10 theaters in the U.S. and two in New Zealand. How long do you expect it to take for approval in these locations? I’ll handle this one.
In most jurisdictions, obtaining liquor license is a bureaucratic process that has many layers state, local and in some cases, special interests. There is not one standard formula to be followed and replicated at least not in the U.S.
The majority require current public assembly permits and certificates of occupancy to be furnished and background checks to be performed on the principal offices. That being said, we anticipate that the majority of these licenses will be in place before the year's end.
With some coming on board earlier like Valley Plaza, Kahala and Kapolei and some later, like potentially the Cinemas 1, 2 and 3 and Village East. With respect to the two applications in New Zealand. We don't expect to receive decisions on these this year.
Another question we received was regarding the migrating relationship between studios and theaters read the exclusive windows. AMC just regained exclusive windows from Warner Brothers for 2022 films.
What does that mean for Reading? Is Reading at risk in any way of having inferior terms? Has Reading negotiated any deals with any major studios regarding a new normal for exclusivity, or is our chain relegated to follower or taker of terms in such negotiations? Has Reading been in discussions with any studio or distribution company regarding emulating anything like the AMC Universal deal, or other exhibitors recent deals allowing studio example Universal, the option to shorten the window and provide Reading a piece of the downstream PVOD, or other revenue.
Ellen, could you handle that one?.
Yes, Andrzej, we also read that AMC had inked a deal with Warner Bros ensuring a 45 day theatrical window for the studios releases in 2022. As we mentioned in our last earnings call in the U.S.
at the moment, we don't have any new definitive long-term overall film deals with distributors that address changing windows or film splits or participation – participation PVOD deals. We've historically had a strong relationship with Warner Bros and expect that relationship to continue going forward.
We'll play Warner Bros movies in 2022 with this 45 day exclusive theatrical window in place, just like AMC, and following on this point, we don't believe that a major studio would treat our U.S. circuit differently from our larger U.S. peers when it comes to any major adjustments to the theatrical window.
We believe that for pre-pandemic periods, our historic film deals, we're competitive based on our relative size compared to our larger peers. We think our historic practice of competing with our larger peers and negotiating film deals in the U.S.
that are competitive compared to our larger peers will continue in light of the announced 45 day exclusive theatrical window for the 2022 Warner Bros slate. Likewise, we believe that with respect to major shifts in windowing will be treated similar to our larger peers. In Australia and New Zealand, the same themes apply.
We don't have any definitive long-term overall film deals with distributors that address changing windows or film splits or participation in PVOD deals.
However, taking into account the overall cinema industry in Australia, New Zealand, we believe that in the near term, the average overall exclusive theatrical window in Australia and New Zealand will remain longer than in the U.S.
And as a general policy and philosophy, the pandemic and changing theatrical windows will put pressure on the economics and margins for exhibitors, like occupancy cost with their landlords focus on film rental terms that make economic sense, for exhibition need to be a priority for our company and the industry at large..
Thanks, Ellen. Another question we received perhaps Gilbert, you can handle this one? Can Reading’s U.S. Cinemas made money at 50% capacity restriction? What level of occupancy from capacity constraints? Do you feel are necessary to at least break even in your U.S.
cinemas? Gilbert?.
There are many potential variables that could be at play a 50% seating capacity restrictions were strictly enforced across our U.S. circuit for a sustained period of time. Historically, we rely on access to full seat capacity for certain showtimes in New York City, or other high volume theaters.
In addition, evening show times traditionally commend more patrons and major blockbuster films significantly add to the popularity of these evening showtimes. If 50% of each throughout our U.S. circuits were not there. It would be hard to break even the way we do business today..
Thanks, Gilbert. A former railroad property owned by Reading adjacent to the. Reading Viaduct in Philadelphia was the target of the lawsuit seeking to basically condemned the property and charge Reading for its cleanup and rehabilitation. Reading purportedly has chosen to demolish the building.
What is the status of the litigation regarding this property? What are your plans for the site post demolition? And what are Reading plans for his main Viaduct properties.
Ellen?.
As an owner, we thought to complete the necessary demolition work. We initially obtained a permit from the City of Philadelphia to demolish the upper half of the building, which was connected to the Viaduct. After receiving this permit. We made the decision to demolish the entire building and sought a permit for that demolition.
Before we sought the permit for the full demolition, the plaintiffs appealed the city's issuance of the initial permit for the partial demolition. We appeared before an administrative board of the City's Department of Licenses and Inspections, and with the City support, successfully defended the issuance of the permit for the partial demolition.
We then sought and obtained a permit for the demolition of the entire structure. As of today, the demolition of the building and the platform connecting to the Viaduct are currently underway and should be completed during the quarter. As to the status of litigation, we've appeared in court and moved to remove the matter to Federal Court.
We've told the Federal Court that the Surface Transportation Board, the STB, or a federal agency having oversight over railroad properties has exclusive jurisdiction over transfers of rail properties such as this property, and that the STB, not Pennsylvania Court, must therefore approve any takeover by the plaintiffs of this parcel.
The Federal Court hasn't ruled and we believe our actions to demolish the structure, render their litigation view are moved. With respect to our Viaduct and related property assets, we need a long-term plan that ensures the company and the interests of his stockholders are protected and plan strategic action will be developed and do course..
Thanks Ellen. With that, we’ll draw the question-and-answers to a close and also the earnings call. We appreciate your listening to the call today. Thank you for your attention. And we wish everyone good health and safety. Thank you..