Thank you for joining Reading International's earnings call to discuss our 2018 first quarter results. My name is Andrzej Matyczynski. I'm Reading's Executive Vice President of Global Operations. With me as usual, Ellen Cotter, our CEO; and Dev Ghose, our EVP and Chief Financial Officer..

As usual, before we begin the substance of the call, I'll start by stating that in accordance to 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 2018 first quarter earnings release on the company's website..

In today's call, we'll also use an industry-accepted financial measure called theater level cash flow, which is theater level revenues, less direct theater level expenses. 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..

So with that behind us, Dev will be talking to us about the financial results for the first quarter a little later. But first, I'll turn the call over to Ellen who'll update us on the company's operations for what has turned out to be an exciting year for the company. .

Thanks, Andrzej, and thank you, everyone, for joining us today and sending in your questions. Like we've done in the past, we've tried to address many of your questions in our prepared remarks. And as always, we're available for follow-up calls to discuss our operations and strategy..

The first quarter of 2018 was a terrific quarter for RDI. We set multiple records at $75.8 million. Our total revenue set an all-time record-high for any quarter. At $5.6 million, our first quarter operating income represented the highest first quarter.

Our first quarter 2018 net income of $3 million and EBITDA of $11 million represented the highest first quarter since 2015 and the second highest first quarter on record..

I'd note that in February of 2015, we had a $2.8 million onetime gain on sale from our Doheny condo in Los Angeles. Excluding our gain on sale from Doheny, the first quarter of 2018 would have been our highest first quarter ever for net income and EBITDA.

I point this out because I believe it demonstrates the strong organic growth we are delivering across our global operations in both our cinema and real estate divisions..

Our first quarter results were driven by our global cinema divisions. Our Australian cinema division enjoyed a 7% increase on revenues, which was supported by the first full quarter of operations of our newly constructed state-of-the-art Reading Cinema at Newmarket Village, just outside of Brisbane.

Our cinemas in New Zealand performed favorably compared to 2017, when our Reading Cinemas at Courtenay Central was closed for most of 2017's first quarter due to the November 2016 earthquake. And we grew our U.S. cinema division revenues by 5% as we continued to execute on our global cinema strategy.

During the first quarter of 2018, we invested just over $23.2 million in capital improvements in both our existing real estate and cinema portfolios, which included the buyout of our previously leased U.S. digital projectors..

Australia, New Zealand and United States. Our consolidated annual cinema revenues of $72.3 million increased by 9% compared to first quarter 2017.

While the industry braced for a slower quarter compared to last year, the slate from the major studios, including the cultural phenomenon and record-setting Black Panther, was still strong and supported our positive overall global performance..

In addition, as I'll touch on in a few minutes, the performance of many of our cinemas demonstrated the successful execution of our global cinema strategy. Each of our cinema divisions in the United States, Australia and New Zealand, in their native currencies, delivered the highest first quarter revenue on record..

This revenue drove our first quarter 2018 cinema segment operating income to $10.3 million, representing a 13% increase over first quarter 2017 and a first quarter record-high for this financial metric..

Turning to Australia. We performed well with cinema revenues in Australia of $26.7 million, representing a 7% increase versus last year. Additionally, we outperformed the Australian cinema industry on a box-office basis by just about 8%.

Despite a 2% attendance decline, our revenues outperformed historical levels, driven by our premium auditoriums TITAN LUXE and TITAN XC screens and our Gold Lounge and premium auditoriums. Also, the first quarter of 2018 was the first full quarter of operation of our new Reading Cinemas at Newmarket Village.

We don't think the dip in attendance is symbolic of anything other than that the 2018 first quarter slate was not as strong as 2017. The first quarter 2017 movie slate, which included Beauty and the Beast, Logan, Lion and SING, provided a more appealing overall slate for our Reading Cinema audience in Australia..

Our cinema revenue in New Zealand at $7.6 million increased by 41%. This increase was primarily attributable to Courtenay Central having been temporarily closed for most of the fourth quarter -- sorry, the first quarter in 2017, due to the November 2016 earthquake.

Reading Cinemas at Courtenay Central is and has historically been our highest grossing cinema in New Zealand..

With a 5% increase in our U.S. cinema division revenue, our U.S. cinemas outperformed the industry by just over 7%. Despite a 2% attendance decline, our quarterly revenue performance was led by positive performances in our TITAN LUXE and TITAN XC screens' increased food and beverage offers..

Once again, we don't think the first quarter 2018 dip in attendance is symbolic of anything other than the first quarter 2018 slate was just not as strong as 2017, and in the U.S., half of our screens at our Reading Cinema in Manville, New Jersey were closed for recliner seating upgrades. I'll also note that our U.S.

cinema attendance in April 2018 was the highest April on record..

In the first quarter of 2018, we continue to execute on our global cinema strategy.

Our goal is to deliver to our guests not only the most comfortable cinematic experience but also one that features a state-of-the-art presentation through our premium auditorium experience with a uniquely lobby designed space and elevated food and beverage offerings that match our local market..

At our Reading Cinema in Murrieta, California, we've now completed a major renovation.

In addition to F&B upgrades, which I'll touch on shortly, we installed recliners in all 17 auditoriums, converted 2 auditoriums to TITAN LUXE and significantly improved the design of our lobby to create a memorable overall experience for our guests that maximize returned visits..

We also completed the installation of recliner seating in 6 of the 12 auditoriums at our Reading Cinema in Manville, New Jersey during the first quarter. This project was completely finished in April 2018..

In Australia, this was the [indiscernible] full quarter of operation at Reading Cinemas at Newmarket Village where we now offer a TITAN LUXE and 2 Gold Lounge screens in a beautifully designed theater. During the first quarter of 2018, we also completed renovations at 2 of our existing Reading Cinemas.

At our Charlestown Reading Cinema in New South Wales, we converted 1 auditorium to a TITAN LUXE with recliner seating and 2 other screens to our premium offering, which also features recliner seats. We completed a similar renovation at our Reading Cinema in Elizabeth in South Australia..

Our strategic focus on food and beverage continue across the global circuit and help drive our record performance. Each of our 3 cinema divisions, on a functional currency basis, set first quarter F&B revenue records.

In Australia and New Zealand, our F&B revenues in functional currency increased by 3.5% and 50.2%, respectively, against the prior year. Again, most of the increase in New Zealand related to Courtenay Central being closed during the first quarter of 2017.

And in the United States, our first quarter 2018 F&B revenues increased slightly over first quarter 2017..

We continue to achieve first quarter F&B per cap records in our U.S. and New Zealand cinema divisions. In the U.S., our first quarter F&B per cap was $4.63. And in New Zealand, our F&B per cap was $4.18 calculated in functional currency..

On March 30 of this year, we soft launched Spotlight, our first U.S.-based dine-in concept at our Reading Cinema in Murrieta, California. In 6 of our 17 auditoriums at this theater, we offer waiter service before the movie begins with a full F&B menu, luxury recliner seating and a laser focus on customer service..

We continue to improve our guest technology experience and increased our revenue through our online ticketing capabilities. During the first quarter of 2018, we increased our online gross service fee revenue to $1.1 million, which represented a 36% increase from the first quarter in 2017.

Led by Black Panther and Jumanji, online ticket sales had a record first quarter in all countries, exceeding previous first quarter records by as much as 54%. With an improved online sales infrastructure to better handle high sales volume, Black Panther set daily and weekly online record ticket sales in all countries..

And to further improve the online experience on our U.S.-branded website, during the first quarter of 2018, we launched the sale of electronic gift cards, guest-enabled online refunds and social sharing. We're aiming to launch our Australian and New Zealand-branded ticketing apps before the end of the year..

South City in Brisbane and Traralgon outside of Melbourne. The third location is in Victoria and will hopefully be announced soon. We anticipate bringing these new cinemas online in 2018, 2019 and 2020. .

Our teams in the U.S., Australia and New Zealand continue to pursue new build opportunity and explore potential acquisitions of reasonably sized circuits that meet our risk and return thresholds..

increased Australian rental income due to new tenants in our recently expanded entertainment themed centers, or ETCs, in Newmarket Village and Redyard in Auburn just outside of Sydney; a full quarter of revenue in 2018 from Courtenay Central in Wellington, New Zealand, which was closed for most of the first quarter of 2017; and increased revenue from our live theater business in the U.S..

Our first quarter real estate operating income of $1.6 million increased by 26% compared to the same period in 2017. Again, the primary drivers were Newmarket Village, Redyard in Auburn and Courtenay Central in New Zealand.

This was partially offset due to the increases in depreciation, due to the moving of our Los Angeles headquarters from rented space to space in a building we now own in Culver City and a decline in lease revenue due to a fire at our property in Chicago.

We have business interruption insurance that we anticipate will make up for the lost income in Chicago resulting from the fire, but revenues from this insurance will not be booked until they are received..

I'll cover a few of the quarterly highlights related to our real estate portfolio. Turning to Newmarket Village in Australia. The first quarter 2018 marked the first full quarter of operation of our Newmarket Village expansion.

In December 2017, we added a new 8-screen state-of-the-art Reading Cinema with both TITAN LUXE and 2 Gold Lounge screens and delivered just over 10,000 square feet of new F&B retail.

Today, 93% of this new retail space has been leased, and our patrons are enjoying new restaurants like Sushi eat out, Little Red Dumpling and Miss Claudes' French crepes. We expect the remaining tenancy to be leased soon..

Creatively engaging with the local community is a priority at Newmarket Village. On May 27, we'll host The NewBARKet Dog Festival. The agenda for this fun and unique festival includes dog parades, puppy yoga, pet photography, pampering sessions, dog first aid and trick and obedience workshops..

For those of you who are not familiar with our property at Redyard in Auburn, it's a center located on Parramatta Road, which is one of the busiest arterial roads in the Sydney area.

When we bought the property in the late 1990s, we bought it at a price that reflected the fact that the Telstra Corporation owned an approximately 17,000 square foot building on Parramatta Road situated essentially right in the middle of our property, abutting our property on 3 boundaries.

Over the last couple of years, we worked around the property and constructed incremental tenancies around the Telstra building. The first quarter of 2018 reflected the full rental revenue from these newly constructed tenants around the Telstra building..

On April 11, 2018, Telstra put this property up for public auction. At the end of a lively in-person auction, which attracted a number of private bidders, we were able to acquire the property for USD 3.5 million, or NZD 4.5 million. Due to its key location, we believe that the property will add synergistic value to our center.

Moreover, as the property is subject to a leaseback to Telstra, an investment-grade tenant, through September 2022, we will be able to enjoy cash flow from the property from day 1, while we develop a comprehensive plan to integrate it into Redyard.

With this recent acquisition, Redyard in Auburn represents approximately 520,000 square feet of land with approximately 1,600 feet of uninterrupted frontage on Parramatta Road. Today, Redyard has ongoing construction as we're investing in the improvement and engagement of the center's common areas..

Tavolo and Dome Cafe. During the first quarter, we also secured Tao Cafe, a well-known local Asian-inspired restaurant as a tenant and whom we expect to open for business before the end of 2018..

A brief update on our 70.4-acre site in Manukau, adjacent to the Auckland International Airport in New Zealand.

During the first quarter, we continued to work with our neighbors in the Southern Gateway Consortium on an infrastructure work program that the Auckland City Council has required to be completed before any development proceeds on our property there..

Now turning to the U.S. Over the last quarter, we continue to pace with the construction of our 44 Union Square project in New York City. Today, all of the floors of the building through the fifth floor have been poured and are now available for prospective tenants to tour.

We anticipate that the project will be ready for the commencement of tenant fit-out at the beginning of the fourth quarter of 2018..

We are constructing in the heart of New York City essentially a new building that has retained 2 historical [indiscernible] walls dating back to 1929 when the original Tammany Hall was built. As one might expect when dealing with the redevelopment of a historic building in Manhattan, we encountered some site conditions that caused delays.

We've navigated these delay challenges, and with most of the floors having been poured, our focus is on the iconic and award-winning glass dome..

Our exclusive leasing agent, Newmark Knight Frank, continues to guide us through the leasing process. Newmark and the company remain confident about the leasing. The building presents well, and it's much easier now for people to conceptualize the space, since all but one of the floors can be accessed by potential tenants..

The Midtown South office market remains strong. The quality of the potential office tenants we're talking to support our ongoing enthusiasm about our signature project. We're engaged in discussions with global companies, talking about this one-of-a-kind opportunity to brand to the powerful demographic that resides in and around Union Square.

As we've said before, the office leasing may be completed before the retail space on a lower floor. That is unless the best opportunity for us to pursue is a full building user..

As construction progresses and we observe firsthand the fully realized potential of the space being created, the company is increasingly comfortable with the prospect [indiscernible] completing base building construction prior to executing leases.

We feel the physical experience of this space reveals its unique benefits better than our marketing materials.

We are equally confident that the prospective tenants actually experiencing the space will drive higher rent offers from stronger, more prestigious credit tenants, as 44 Union Square undoubtedly offers a unique long-term branding opportunity for top-tier tenants.

The executive team continues to believe that this iconic building in a dynamite location will lease on rental terms consistent with our original pro formas..

Our Board of Directors and management team is also focused on improving our technology and cybersecurity systems in order to elevate Reading standards on many levels. During the first quarter of 2018, we launched an updated corporate website at readingrdi.com, which features an improved real-time Investor Relations section..

Also on May 8, 2018, our Board of Directors appointed Guy Adams, an existing board member, as our Lead Technology and Cyber Risk Director. Mr. Adams' charge will be to ensure the company has taken appropriate steps to protect itself against cyber risk and take appropriate steps to drive our technology forward..

With that, I'll turn the call over to Dev for a financial review of the first quarter. .

Thank you, Ellen. Now I'll discuss the financial results for the first quarter ended March 31, 2018..

one, the opening of a new state-of-the-art 8-screen theater on December 14, 2017, in Newmarket, which is in Brisbane, Australia; secondly, the reopening of our Courtenay Central cinema in Wellington, New Zealand on March 29, 2017; and then finally, increases in average ticket prices in our U.S.

and Australian cinemas; and fourthly, an increase in spend per patron across all jurisdictions..

Net income attributable to RDI common shareholders increased slightly to $3 million for the first quarter of 2018, principally due to the increase in cinema circuit segment operating income due to the reopening of our Courtenay Central ETC in Wellington, New Zealand, which was closed for the majority of the first quarter of 2017 due to the earthquake in November 2016, along with increased operating income from our U.S.

operations. These were offset by increased nonsegment G&A expenses as well as lower other income due to the one-off gain in 2017 from foreign exchange gain on short-term funds held in our foreign operations. For the quarter, EPS of $0.13 was flat to the prior year..

Our nonsegment general and administrative expenses for the quarter ended March 31, 2018, compared to the same period of the prior year, increased by 30% or $1.4 million.

This increase is mainly due to higher nonrecurring legal expenses incurred in the derivative litigation, the Cotter employment arbitration and other Cotter litigation matters and due to increases in headcounts, annual salary increases and the timing of recording changes in variable compensation this year compared to 2017..

Income tax expense decreased by $548,000 for the quarter ended March 31, 2018, compared to the equivalent prior year period. The change between 2018 and '17 is primarily related to lower pretax income, the reduction of the U.S. statutory corporate tax rate as a result of the tax act, and a net increase in foreign tax credit..

Shifting to cash flows.

Our net cash provided by operations for the quarter ended March 31, 2018, was $2.5 million, which is a $2.1 million increase from the comparable period of 2017, which was primarily driven by $1.7 million of higher cash flows from operating activities as well as a $450,000 decrease in net operating assets due to working capital changes.

In quarter 1 2018, the $23.5 million of cash used in investing activities was mainly related to our ongoing real estate development and cinema refurbishment activities. We repaid borrowings by $9.7 million and took on additional net borrowings of $26 million..

Turning now to our financial position. Our total assets increased by $3.5 million to $426.6 million. Of our total cash balance amount, $1.9 million and $1.4 million were held by our Australian and New Zealand subsidiaries, respectively.

We manage our cash, investments and capital structure so that we are able to meet short-term and long-term obligations for our businesses while maintaining financial flexibility and liquidity.

Our liquidity position remains strong with $8.7 million of cash on our balance sheet at March 31, 2018, and approximately $125.3 million of additional capacity under our borrowing arrangements at that time in the U.S., Australia and New Zealand, with $64 million of that $125.3 million being unrestricted capacity.

Our global operating strategy is to conduct our business mostly on a self-funding basis, except when it's organizationally and economically better for us to move funds between the jurisdictions in which we do business..

As of March 31, 2018, we have debt outstanding of $150.2 million. And our debt to adjusted EBITDA ratio, excluding debt that's allocated to facilities under construction and thereby not generating any EBITDA, that continues to be strong at below 2x coverage..

And with that, I'll now turn the call back to Andrzej. .

Thanks, Dev. First, I'd like to thank our stockholders for forwarding questions to our Investor Relations e-mail. We were very pleased with the number of inquiries. We've compiled a set of questions and answers that represents the most common questions and recurring themes that were e-mailed to us.

As always, we are available after the webcast to address any additional questions and encourage you to continue doing reaching out. .

So the first question will be for Dev.

How does the 2017 tax reform law impact Reading International's ongoing tax strategies?.

The tax reform's greatest impact to Reading International is the reduction of the U.S. corporate tax rate from 35% to 21%, and generous depreciation deductions on newly acquired tangible assets. The lowering of the U.S. tax rate and the beneficial depreciation methods puts Reading International in an environment in which the U.S.

is a lower-tax jurisdiction compared to the 2 other foreign jurisdictions we operate in, Australia and New Zealand, where the tax rates are 30% and 28%, respectively.

This change provides opportunity for the company to reconsider its management fee, transfer pricing arrangements and its global capital structure, such that the company continues to maintain an optimal worldwide effective tax rate.

Reading International also benefits from the repeal of the alternative minimum tax which permits about $2 million in AMT credits to be used in the form of a prepaid income tax to thus reduce U.S. tax payments. .

Question, we received a number of questions about the status of the cinemas 1, 2, 3 development in New York City, and Ellen will address that. .

To date, we've not been able to reach an agreement with our neighbors as to what our respective ownership interest would be. As we've said in the past, we're poised to start this project on our own. We've retained counsel to begin certain land use work, which will be needed whether we go it alone or a joint venture project is pursued.

We want to reiterate that we're quite fortunate to have strong irreplaceable New York City properties in our portfolio to provide our company with a strong asset base.

We believe that our cinema and property businesses differentiate Reading from our peers and position us well for the future, as we're able to generate strong and consistent cash flow while having opportunity to acquire and hold properties as they gain significant value. This is and will continue to be our business plan.

In the interim, we continue to use cinema 1, 2 and 3 as a site -- as a movie theater, a state-of-the-art movie theater in Manhattan. .

Thanks, Ellen. We had a couple of questions regarding our debt structure, and Dev is going to field those.

The first of those, with the expected maturity of U.S., New Zealand and Australian loans in 2019, are they going to be refinanced prior to adding to Reading's working capital deficit, by allowing them to be classified as current maturities of long-term debt?.

We are in active talks with our key lenders in Australia, New Zealand and the U.S. to refinance our existing primary credit facilities and extend the duration of the maturity of all of our credit facilities. We would expect to accomplish this well before the loans are due.

On a recent visit to Australia and New Zealand, I had what I would characterize as very good meetings with National Australia Bank and Westpac Bank, our 2 key banks Down Under, had longer-term renewals of our credit facilities in those countries.

In the U.S., we are having very productive discussions with existing lenders as well about renewing and/or replacing our domestic credit facilities. .

Thanks, Dev.

And the second question on the debt, how long term are you contemplating for new Minetta Lane and Orpheum loans? Will the loan be subject to prepayment penalties?.

We are currently negotiating the renewal of the Minetta Lane, Orpheum loan for the next few years, bearing in mind our future development considerations for this loan that covers both the properties.

We will ensure that we will retain the necessary flexibility with regard to the loan period, so as to synchronize future development regarding these sites. We will be conscientious about future development of these sites, such we can grow shareholder value. .

Thank you, Dev. So we now come to our last question, and I will field this one. It's on our G&A costs.

What caused the large increase in G&A expense on a year-over-year basis, up some 23%? Should we assume the first quarter 2018 rate would be annualized? As the litigation expense is increasing, what is the possible [indiscernible] and when do you anticipate resolution?.

Judy Codding, William Gould, Edward L. Kane, Douglas McEachern and Michael Wrotniak. It is anticipated that the remaining defendant directors and the company will bring additional potentially dispositive motions before the court prior to July 9.

A significant portion of the costs related to those potentially dispositive motions were booked in the March quarter of this year. The company is legally obligated to advance the cost of defense of our remaining defendant directors. And it is anticipated that such costs, depending on the court's orders and the scope and extent of the issues which Mr.

Cotter Jr. elects or is permitted to litigate the trial, will likely be in excess of $2 million. We believe that our defendant directors have good and valid defenses to all the claims being asserted against them by Mr. Cotter Jr..

that Ellen Cotter and Margaret Cotter are the sole cotrustees of the living trust and that Margaret Cotter is the sole trustee of the voting trust, and that Mr. James J. Cotter, Jr., is not currently a trustee of either trust.

Accordingly, the position of our company that Ellen Cotter and Margaret Cotter vote more than a majority of the voting power of our company has now been judicially established. The Cotter Trust litigation relating to Mr.

Cotter Jr.'s endeavors to have a temporary trustee ad litem appointed to market the voting common stock eventually to be owned by the voting trust is currently before the California Court of Appeals. As you may recall, the trial court's appointment of such a temporary trustee has been stayed by the appeals court..

And that brings us to the end of the question-and-answer session. We are available for any follow-up discussions. And we'll be presenting on Thursday, May 24 at the B. Riley 19th Annual Institutional Investor Conference in Santa Monica and on Thursday, June 7, in New York City at Gabelli's 10th Annual Movie & Entertainment Conference.

We hope to see you there. Additional information regarding the conferences are included on our website, and we look forward to keeping you updated on our progress and results..

Once again, we appreciate you listening to the call today and thank you for all of your questions and interest in our company..