U.S. Markets closed

Edited Transcript of RDI earnings conference call or presentation 13-Aug-19 10:59am GMT

Q2 2019 Reading International Inc Earnings Call

COMMERCE Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Reading International Inc earnings conference call or presentation Tuesday, August 13, 2019 at 10:59:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrzej J. Matyczynski

Reading International, Inc. - EVP of Global Operations

* Ellen Marie Cotter

Reading International, Inc. - Chairperson of the Board, CEO & President

* Gilbert Avanes

Reading International, Inc. - Interim CFO, Treasurer and VP of Financial Planning & Analysis

================================================================================

Presentation

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [1]

--------------------------------------------------------------------------------

Thank you for joining Reading International's earnings call to discuss our 2019 second quarter results. My name is Andrzej Matyczynski, I'm 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 Interim Chief Financial Officer and Treasurer.

Before we begin the substance of the call, I'll start by stating that 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 2019 second quarter earnings release on the company's website.

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 and property level cash flow, PLCF, which is property level revenue less direct property 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, I'll turn it over to Ellen, who will review some of the business highlights from the second quarter 2019, and then Gilbert will provide a more detailed financial review. Ellen?

--------------------------------------------------------------------------------

Ellen Marie Cotter, Reading International, Inc. - Chairperson of the Board, CEO & President [2]

--------------------------------------------------------------------------------

Thanks, Andrzej, and thanks, everyone, for listening 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.

Now let's turn to our business highlights for the second quarter. At $76.1 million, the consolidated revenue for the second quarter of 2019 represented the second highest quarter on record for the company. This is a decrease of 10% compared to the second quarter of 2018, which set the record high consolidated revenue for Reading.

Q2 2018 was an exceptional quarter at the box office. Thanks not only to the major studios who delivered Avengers: Infinity War, Incredibles 2, Deadpool 2 and Jurassic World: Fallen Kingdom, but also the U.S. specialty distributors who released movies like RBG, Disobedience, Won't You Be My Neighbor? Isle of Dogs and First Reformed. While the second quarter of 2019 saw a relatively softer box office in comparison, the blockbuster success of films like Avengers: Endgame, Aladdin and Toy Story 4, picked up during the quarter.

A couple of unique characteristics about our cinema circuit to keep in mind when analyzing our results versus the industry.

First, about 25% to 30% of our U.S. cinema results are generated by our specialty or Angelika brand theaters. When the specialty film market from distributors like Fox Searchlight, Focus Features, Sony Pictures Classics or A24 is not as strong, Reading will be impacted more heavily than other circuits who rely predominantly on movies from the major studios.

And in 2018, over 50% of our cinema box office revenue was generated in Australia and New Zealand. So when the Australian and New Zealand dollars weaken in value, our U.S. dollar results are impacted. In Q2 2019, the Australian dollar declined 7.5%, and the New Zealand dollar declined 6% versus the same quarter in 2018. These currencies are now trading in about the middle of their exchange ratios versus the U.S. dollar when viewed over the past 25 years. Not only was the major studio lineup during the second quarter of 2019 not as strong as the record-smashing quarter of 2018, these 2 characteristics unique to Reading resulted in lower revenues than reported by our publicly traded U.S. competitors.

And our results were further impacted by the temporary but ongoing closure of our Reading cinema at Courtenay Central in Wellington due to seismic concerns. Our Reading cinema at Courtenay Central was historically our top New Zealand performer and one of the top cinemas in the industry. Our real estate operation results were similarly negatively impacted by the foreign currency fluctuations and the closure of a large part of our third-party retail tenant space at Courtenay Central.

Now let's talk about some of the highlights of each of our business segments. Turning first to our Global Cinema business. Our second quarter 2019 consolidated cinema revenue decreased by 10% to $72.4 million compared to the second quarter of 2018. In spite of this decrease, this was the second best cinema revenue performance in our company's history and achieved despite issues dealing with specialty film in the U.S., foreign currency and the temporary closure of Courtney Central.

Our Cinema segment operating income decreased by 26% to $9.3 million. While we faced challenges this quarter, our operations showed strength in key strategic areas that continue to reinforce our continued pursuit of our overall strategic plan and continued investment in top of the line cinema exhibition and food and beverage. Specifically, in the second quarter of 2019, we achieved record high F&B per caps, which helped offset some of our attendance declines.

Let me go into more market detail, starting with the U.S. Our U.S. cinema revenue decreased 8% to $41 million due to a 13% attendance decline, which resulted in a 34% decrease in U.S. cinema operating income. Our U.S. box office revenue for the second quarter of 2019 was down 12%. The U.S. industry box office for the period was down only 4%, falling from $2.9 billion to $2.8 billion. The greater proportional decrease in our box office versus the industry was in large part due to the weaker slate of specialty films released in Q2 2019. As a result, our U.S. circuit specialty theaters box office revenue declined by 26.4% in Q2 2019.

The art films released in the second quarter of 2018, RBG, Disobedience, and Won't You Be My Neighbor? significantly outperformed the films leading the specialty slate in Q2 2019, which were Booksmart, Amazing Grace and High Life.

When we evaluate the box office of cinema circuit whose programming relies heavily on specialty film, we saw similar dramatic declines in the box office during their Q2 2019 -- during their second quarter of 2019. Specialty film product, like all the programming in our business, tends to be cyclical in nature. We intend to maintain our focus on our specialty film due to, among other reasons, the comparatively lower film rental terms, the more limited number of film runs available to moviegoers in most markets, when compared to commercial film product, a relative importance to distributors in such markets and the attractiveness of art and specialty film patrons for ancillary revenue.

Our art and specialty strategy is a long-term strategy. Because of the relatively weak film slate this quarter, this strategy didn't serve us well as it has in other quarters. Our overall U.S. cinema results were bolstered by the success in our key operational initiatives and strategies.

In the U.S., lower attendance caused our second quarter 2019 F&B revenue to decrease by 4% to $13.1 million versus the second quarter of 2018. This was offset by increased F&B revenue at a number of our newly renovated cinemas, including our Reading Cinema in Marietta, California and consolidated theaters in Mililani on the island of Oahu in Hawaii.

Our Reading Cinema in Marietta, which features Spotlight, our first dining concept in the U.S., ended its first full year of operation in the second quarter of 2019. During the second quarter of 2019, our theater set an all-time highest quarter ever for F&B revenue, overall F&B per cap and theater level cash flow.

We were also pleased to announce that in June 2019, we launched our full F&B offer, including the sale of beer, wine and spirits and a lobby redesign at our consolidated theaters in Mililani. This in conjunction with converting all 14 screens to recliner seating and adding a TITAN LUXE screen at the end of 2018 finalized our top to bottom renovation of this theater. This makeover will allow us to continue to provide elevated service while driving attendance and revenue in the future. Our strategic focus on F&B has continued across our U.S. circuit and helped generate record F&B per cap numbers. At $5.68, we delivered the highest quarter F&B per cap ever in the second quarter of 2019. We are pleased to report that our continued improvement in F&B led us to outperform the U.S. divisions of the 2 top publicly traded exhibitors.

Another key operational focus has been on the development of our self-ticketing capabilities through our website, apps and social media platforms to generate revenue and income. During Q2 2019, at $2.1 million, we achieved a second quarter record for our U.S. other cinema revenue, driven largely by the increasing online ticketing revenue.

And now turning to Australia. On a functional currency basis, the bottom line performance of our Australian cinemas was reasonably good. Notwithstanding a 5% decrease in attendance and a 7.5% decrease in the value of the Australian dollar, our Australian Cinema revenue decreased by only 6% to USD 25.6 million. Our operating income decreased by 15% to USD 5.1 million from the second quarter in 2018. The second quarter 2019 was the first full quarter of operation of our new 4 screen cinema in Devonport, Tasmania. With this acquisition and Reading's entry into the Tasmanian market, we are pleased to report that we now operate in all 6 states in Australia.

The second quarter also marked the first full quarter of operation of our 2 new additional Gold Lounge auditoriums with recliner seating at Harbour Town, which is our biggest and strongest grossing Australian Cinema on a functional currency basis. We also unveiled at Harbour Town a new Kitchen with select upgrades to the F&B offer and a bar and lounge area branded, The Lounge, which is now available to all Harbour Town residents, sorry, all Harbour Town guests, not just Gold Lounge guests.

In addition, during the second quarter at our Reading Cinemas at Maitland and Waurn Ponds, we converted 2 screens to TITAN LUXE each with recliner seating.

On a functional currency basis, the second quarter 2019 box office revenue for our Australian Cinema circuit was not only the highest second quarter on record, but also represented the highest calendar quarter ever. Overall, the Australian box office industry was 1% ahead of second quarter 2018. In second quarter of 2019, our Reading circuit beat the Australian cinema industry by over 4 percentage points or 400 basis points on a functional currency basis.

Our team in Australia has also been hard at work improving our F&B offer across our Australian circuit. While our second quarter 2019 F&B revenue for our Australian Cinema division decreased by 2% to $10.6 million when compared to the second quarter of 2018 principally reflecting reduced admissions on a functional currency basis, Australia still recorded the second highest ever -- highest quarter ever for F&B revenue. Importantly, with our team's focus on food menu improvement and expansion and the extension of liquor, our F&B per cap on a functional currency basis at $4.91 set an all-time quarterly record.

In the early 2019, we began selling beer, wine and spirits at our newly acquired cinema in Devonport, Tasmania. In our newly renovated cinema in Harbour Town, we now offer beer, wine and spirits in all 16 auditoriums. And in May 2019, we expanded our new market liquor license to serve beer, wine and spirits in all 8 auditoriums.

Another key operational focus in Australia has been on the development of our self-ticketing capabilities through our website, apps and social media platforms. On a functional currency basis during Q2 2019 at AUD 1.9 million, we achieved a second quarter record for our Australian other cinema revenue, driven largely by the increasing online ticketing revenue. Collectively, our investment in the Australian circuit and execution of key operational strategies led the Australian circuit to deliver on a functional currency basis a total cinema revenue of $36.7 million. That was the highest of any calendar quarter.

Turning now to New Zealand. Our second quarter 2019 New Zealand Cinema revenue declined by 33% to USD 5.8 million over the same period last year. Attendance decreased by 34%. In New Zealand, our second quarter 2019 cinema operating income decreased by 41% to USD 1 million when compared to the second quarter in 2019. Again, the fact that the New Zealand dollar weakened by 6% this quarter versus Q2 2018 impacted the U.S. dollar results for our New Zealand cinema circuit. But more importantly, in New Zealand, our Cinema revenue was adversely impacted by the temporary but ongoing closure of our Reading Cinema at Courtenay Central in Wellington due to seismic concerns. To mitigate the temporary closure of Reading Cinemas at Courtenay Central, we leased a 3 screen cinema space in Lower Hutt adjacent to Wellington. This cinema now trading as The Hutt Pop Up by Reading Cinemas began operations in New Zealand in late June 2019.

Also, during Q2 2019, we converted 1 screen to TITAN LUXE and another to PREMIUM in New Zealand at our Palms Cinema. Our enhanced F&B strategy in New Zealand is paying dividends as our Cinema division delivered the highest F&B per cap at $4.46 on a functional currency basis, for any quarter, which was the highest for any quarter ever.

Our announced pipeline today is principally in Australia. As mentioned in our earnings release, 4 new Reading Cinemas are under contract in Australia totaling 25 new screens. They're in Traralgon outside of Melbourne, Jindalee in Queensland, South City Square in Brisbane, and Burwood, a suburb of Melbourne. The Burwood Reading Cinema would be our first to feature recliner seating in all 6 auditoriums, including a TITAN LUXE screen with Dolby ATMOS sound. We're proud that this theater is in the world's first shopping center to achieve the living building standard certification, meaning it will generate more energy than it consumes on an annual basis. And we continue to be on track to open this theater before the end of 2019.

In the U.S., we've reviewed and continue to review opportunities to acquire existing circuits. However, we maintain a disciplined approach and to date have elected not to outbid competitors offering prices reflecting returns inferior to those we believe we can achieve by developing new cinemas and upgrading our existing cinemas.

So wrapping up our comments on the global cinema segment and looking ahead, we remain cautiously optimistic about the movie slate for the remainder of 2019. We're pleased with the revenues being generated by our enhanced food and beverage strategy and the performance of our renovated cinemas and anticipate that our pipeline will deliver expected equity returns on our investment in those new state of the art cinemas. The summer kicked off a bang with Avengers: Endgame, breaking records across North America in the second quarter of 2019 and went on to beat Avatar as the highest grossing film at the worldwide box office. We saw Aladdin and Toy Story follow suit. There are some great commercial films lined up to make the third and fourth quarter strong at the box office, with Spider-Man: Far From Home, The Lion King, IT Chapter Two, Joker, Frozen 2, Jumanji: The Next Level, and Star Wars: The Rise of Skywalker to close out the year.

Moreover just as the commercial industry gets a renewed burst of confidence after a movie like Avengers: Endgame opens and breaks all sorts of records, we need to be similarly reminded that in the specialty world, when a movie like the Farewell opens up at the Angelika, New York, in the middle of the summer, and sets opening weekend records, the specialty market gets a renewed burst as well.

During the last 15 years, the Farewell is only the second movie to open during the month of July at Angelika, New York that posted an opening week box office of over $140,000.

Turning now to our real estate business. Our second quarter 2019 real estate revenue declined by 13% to $5.6 million over Q2 2018, which led to a 31% reduction of our real estate operating income to $1.3 million versus Q2 2018. The primary factors driving these results both touched on in our cinema discussion were weaker foreign exchange rates for the Australian and New Zealand dollars and the temporary, but ongoing, partial closure of Courtney Central due to seismic concerns.

I'll mention a few real estate segment highlights for the quarter. Let's start with our U.S. real estate business. Our live theaters today represent the main contributor to our U.S. real estate segment. We experienced a slight decline in live theater revenue, an aggregate property level cash flow of 8% and 2%, respectively, during the second quarter of 2019 compared to Q2 2018.

At the Minetta Lane in New York City, in April 2019, we extended our license agreement with the Audible, a subsidiary of Amazon, through March 2020 with an option on the part of Audible to further extend that license for 1 additional year through March 2021. Audible continues to produce their 1 and 2 actor plays and special engagements at the Minetta Lane, which they then offer on audible.com. STOMP, at our Orpheum Theatre in New York City shows no signs of slowing down. And the Q2 2019 performance of the Royal George Theatre improved due to the success of Miracle, a musical set against the backdrop of the Chicago Cubs.

Turning to our signature Tammany Hall project at 44 Union Square in New York. The construction of the iconic dome is structurally complete with the installation of the glass expected to be finished in the near future. Nearly half of the glass is now in place. The current images of this unique addition to Union Square in New York City are worth looking at on our 44 Union Square Instagram page. As we noted in our recent filings, we anticipate that the project will be ready for the commencement of tenant fit out in the near future. We're in the final negotiations of a long-term office lease for approximately 90% of the net rentable area of the building. The Midtown South office market remains strong, but a couple of points to note. Firstly, the second quarter leasing velocity in this submarket nearly doubled from Q1 2019, closing at 2.8 million square feet. Also, the absorption rate hit a high of 814,000 square feet and the availability rate fell to 8%. In our project, the remaining 7,200 square feet of ground floor space facing on Union Square continued to be marketed for retail use by our exclusive broker Newmark. We're also advised that the takeout lending market is also more competitive than in recent periods.

Turning to Australia. Our Australian real estate revenue decreased by 6% to USD 4.1 million, due again to the effects of the weakening Australian dollar by 7.5% in the second quarter of 2019. The strength of the U.S. dollar has had a direct adverse impact on our bottom line. On a functional currency basis, our Australia property level cash flow increased by 11% in the second quarter of 2019 when compared to the same period in 2018.

The majority of our Australian centers, Newmarket Village in a suburb of Brisbane, Auburn Redyard in a suburb of Sydney and the Belmont Common outside of Perth showed increases in rental income over the second quarter in 2018. As you know, at the end of 2017, we added a new entertainment wing at Newmarket Village, which includes an 8-screen Reading Cinema along with over 10,000 square feet of additional F&B retail space. We did initially experience some lease-up challenges. However, our leasing team has successfully addressed these challenges and 100% of our new F&B dining precinct is now either under lease or heads of agreement.

We expect that the 3 new tenants will be trading by the third quarter of 2019. We feel that each of them offer operational strength and contribute to a nice curated mix of dining options for our new Market Village patrons.

With respect to in Cannon Park in Queensland, Australia, our project team finalized and submitted to the Townsville City Council, a development application for the expansion of our Reading Cinema to get a new TITAN LUXE auditorium and to have 1 auditorium converted to PREMIUM featuring recliner seating, in addition adding 5 new F&B and retail tenancies consisting of approximately 5,700 square feet of incremental leasable space. Our master plan also contemplates significant improvements of the common areas with creation of new landscape sounds.

Turning to our assets in New Zealand. Our New Zealand real estate revenue decreased by 46% to USD 600,000 versus the second quarter in 2018. This decrease was primarily attributable to a temporary and ongoing closure of parts of Courtenay Central in Wellington and further negatively impacted by the weakening New Zealand dollar. During the second quarter, our international development team worked with our consultants to refine our anticipated seismic retrofit and overall redevelopment plans. Through a combination of efforts from structural engineers in Wellington and Los Angeles, we've been able to develop a seismic design to ensure our priorities of safety and asset preservation while also maintaining potential construction costs at levels consisted with our targeted returns on investment.

Today, Wellington has hundreds of millions of dollars worth of development on the books. From incremental residential to various public buildings. We need to be laser-focused on the potential for construction cost overruns. We believe our efforts during the second quarter will support a better economic case for proceeding with our goal of reimagining the existing Courtenay Central space as a vibrant community-oriented entertainment and retail destination.

Turning to our undeveloped land in Manukau, New Zealand. During the second quarter, we continued to work with various public and private stakeholders to advance the 4 different infrastructure work projects necessary to commence development on our 70.4-acre industrial site in the Manukau area of Auckland, New Zealand. The informal Southern Gateway Consortium, of which Reading is 1 of the 3 members, advanced legal agreements addressing relative responsibilities of the members with respect to this infrastructure portion of the development phase. In addition, the various public stakeholders, the New Zealand Transport Authority, Auckland Transport and the airport concurrently worked with the consortium on agreements and plans related to infrastructure impacting the land of the Southern Gateway Consortium members, adjacent land owned by the airport and the roadways controlled by these transit authorities. It's anticipated that the infrastructure agreements will be finalized before the end of the year helping to open up to development one of the most buoyant industrial markets of New Zealand.

In conclusion, as a management team that has significant cinema industry experience, we have a longer-term view when analyzing box office and tenant trends and believe this industry, which will likely again deliver over $11 billion of domestic box office, remains a relatively stable source of income and entertainment. In addition, our company has strong and unique assets that as the current market environment demonstrates will be very difficult to replace. Our company operates, excels in and relies on historically stable cinema industry to create long-term value for our stockholders. We remain focused on executing our business plan to continue creating value in both our cinema and real estate portfolios for the benefit of all of our stockholders.

Now I'll turn the call over to Gilbert for a financial review of the second quarter 2019.

--------------------------------------------------------------------------------

Gilbert Avanes, Reading International, Inc. - Interim CFO, Treasurer and VP of Financial Planning & Analysis [3]

--------------------------------------------------------------------------------

Thank you, Ellen. 2019 had a relatively slow start compared with the prior year due to a soft film product. However, attendance and box office revenue have picked up during the second quarter with the release of blockbuster movies, such as Avengers: Endgame, Aladdin and Toy Story 4. With that being said, we continue to look forward to the rest of the year for better box office results.

Consolidated revenue for the second quarter of 2019 decreased by 10% to $76.1 million. For the 6 months ended June 30, 2019, revenue decreased by 14% to $137.6 million compared to the same period in the prior year. As previously mentioned, this was driven by a soft film product in both commercial and specialty categories and competing against last year's strong performance. These combined factors resulted in a decrease in attendance in our U.S., Australia and New Zealand circuits.

These results were further impacted by an 8.5% decline in Australian dollar and a 6.1% decline in New Zealand dollar for the 6 months ended June 30, 2019, over a comparable period in 2018. As mentioned earlier, our cinema operating results in New Zealand were also adversely impacted by the temporary closure of our cinema at Courtenay Central in Wellington, which used to be the top performer in New Zealand circuit. At the same time, the partial closure of Courtenay Central property as a result of seismic concern was one of the key drivers of unfavorable result of our real estate segment in New Zealand.

Net income to RDI common stockholders decreased by 52% to $2.4 million for the second quarter of 2019 compared to the same period in prior year. Basic earnings per share for the quarter ended June 30, 2019, was $0.10, a decrease of $0.12 from the prior year quarter. Year-to-date June 2019 net income to RDI common stockholders declined by 96% to $0.3 million. Basic earnings per share declined by $0.34 to $0.001 (sic) [$0.01] from the same prior year period, primarily due to the decrease in revenue from both our cinema and real estate business segments.

Nonsegment G&A expense for the quarter ended June 30, 2019, decreased by 18% to $4.7 million compared to the same period in 2018. For the 6 months ended June 30, 2019, nonsegment G&A decreased by 18% to $9.7 million. This is primarily the result of lower legal expenses when compared to the same period last year. Income tax expense for the quarter and 6 months ended June 30, 2019, decreased by $0.3 million and $2.5 million, respectively, compared to the equivalent prior year period. The change between 2019 and 2018 is primarily related to a lower pretax income in the first half of 2019.

For the second quarter of 2019, our adjusted EBITDA decreased by $3.6 million to $12 million compared to the same prior year period. Year-to-date adjusted EBITDA was $16.7 million, representing an $11.4 million decline against the first half of 2018. These decreases are primarily due to a lower net income in the first 6 months of 2019, offset by a decrease in legal fees. We have adjusted the EBITDA item we believe to be external to our businesses and not reflective of our cost of doing business or results of operation. Such costs include gains on insurance recoveries, legal expenses related to the extraordinary litigation adjustment for gain losses relating to property sales and any other item that can be considered nonrecurring in accordance with the 2-year SEC requirements for determining an item as nonrecurring, infrequent or unusual in nature.

We believe adjusted EBITDA is an important supplemental measure of our performance.

Shifting to cash flow. For the first half of 2019, net cash provided by operations decreased by $10.3 million to $3.1 million when compared to prior year. This was primarily driven by a $5.5 million lower cash inflow from operating activities as well as a $4.8 million decrease in net operating assets. Cash used in investment activities decreased by $19 million to $24 million during the first 6 months of 2019 compared to the same prior last year due to a slowing in our cinema refurbishment activities and the substantial completion of the upgrading and expansion of the Newmarket and Redyard ETC in 2018. However, it is anticipated that spending on our cinema activities will pick up over the remainder of the year.

Cash provided by financing activities was $16.5 million during the 6 months ended June 30, 2019, and was mainly related to $34.7 million of new borrowing, offset by a $14.9 million of loan repayment. Proceeds from these new borrowings are related principally to the ongoing construction of our 44 Union Square project in Manhattan and to fund the capital improvement in our cinemas and real estate segment as well as the acquisition of Devonport in Australia.

Turning now to our financial position. Our total assets increased to $672.8 million compared to $439 million on December 31, 2018. This large increase of $233.8 million was primarily driven by the implementation of lease accounting standards effective January 1, 2019, which also resulted in a similar increase in our liabilities. Our financial positions remain strong with $177.7 million in stockholders' equity supporting our assets.

Additionally, with $8.5 million of cash in our balance sheet at June 30, 2019, we're also in a strong liquidity position. Of our total cash balance amount, $1.9 million and $1 million were held by our Australia and New Zealand subsidiaries, respectively. We use the amounts that we received from our cinema and real estate businesses to pay down our long-term borrowings and realize savings from lower interest expense. We then settle our operating expenses generally with a lag within the traditional trading terms. This generates a working capital deficit, which is a positive for the company. 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. As of June 30, 2019, there was approximately $102 million of additional capacity under our borrowing arrangement in the U.S., Australia and New Zealand, with $83 million of the $102 million being unrestricted capacity. Our overall global operating strategy is to conduct business mostly on a self-funding basis, except where it is organizationally and economically justified for us to move funds between the jurisdictions where we do business. On August 8, 2019, we extended our Bank of America facility to September 1, 2020.

With that, I will now turn it over to Andrzej.

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [4]

--------------------------------------------------------------------------------

Thanks, Gilbert. Firstly, I'd like to thank our stockholders for forwarding questions to our Investor Relations e-mail. We've compiled a set of questions and answers, representing the most common questions and recurring themes e-mailed to us. As always, we are available after the webcast to address any additional questions and encourage you to continue reaching them.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [1]

--------------------------------------------------------------------------------

So the first question, which I will handle, has the board considered increasing the repurchase plan to be able to be more aggressive?

As previously discussed in our Q1 conference call, we maintain a balanced approach to capital allocation between investing in projects that will drive long-term value and returning capital directly to stockholders. With that in mind, but recognizing the clear value proposition that our share price offers currently, we have been more active in our share repurchase program since April 1st of this year. We bought back 559,627 shares of Class A stock for $8.8 million between March 2, 2017 and March 31, 2019. And since that day, brought an additional 269,637 shares of Class A stock for $3.6 million, therefore, leaving us $12.6 million available for future purchases. As a result, we believe that this continues to show our commitment to the share repurchase program as a means of returning value directly to stockholders and that we have enough current board approved funding to achieve this goal.

So the next question, which will go to Gilbert, you have at least a full year of overall upgrade at Cal Oaks. How is it faring versus your internal expectation? What was the ROI expected and being achieved? Can you discuss Reading's experience with its first U.S. foray deploying dine-in experience via your Spotlight or similar service? Gilbert?

--------------------------------------------------------------------------------

Gilbert Avanes, Reading International, Inc. - Interim CFO, Treasurer and VP of Financial Planning & Analysis [2]

--------------------------------------------------------------------------------

The California Theater in California undertook a significant facility renovation and experienced its first fully operational quarter with Reading's first ever dine-in service, Spotlight in Q2 2018. We have now experienced a full year of operation after completing the top to bottom renovation at Cal Oaks. Even though we have gone through a full year of operations, we continuously strive to look for efficiencies as well as creating innovative food and beverage menu to serve our customer. Cal Oaks Continues to set records for the highest quarter ever in food and beverage revenue and food and average per cap in Q2 2019, and we expect this trend to continue. Although we do not publicly disclose the return on specific projects, our return on investment expectation for our capital renovation is in the mid-teens. Cal Oaks Is meeting and exceeding its target.

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [3]

--------------------------------------------------------------------------------

Thanks, Gilbert. The next question. Other major comps in the United States have been pushing hard on driving people through the door with various initiatives. What is RDI doing to drive attendance in down box office quotas? Or what are ideas that can be done going forward? Ellen?

--------------------------------------------------------------------------------

Ellen Marie Cotter, Reading International, Inc. - Chairperson of the Board, CEO & President [4]

--------------------------------------------------------------------------------

In recent months, we've seen the rise and fall of certain third-party subscription services in the U.S., such as MoviePass and Sinemia. In the last 18 months, U.S. exhibitors are now competing through their own subscription plans. This development in the exhibition marketplace reflects what we've known for years, value is key to driving attendance in certain markets. Because of the diversity of our U.S. circuit in terms of geography and programming, we compete against AMC, Cinemark and Regal and their new subscription offerings in our different markets. Each of these new programs have their own unique discounts and rules. Our circuit size will not allow us to create one program that work seamlessly and profitably from Hawaii to New York City or markets where we only have one theater. We're studying each of these subscription programs and trying to evaluate their impact on our competitive cinemas to determine how to best proceed, if at all.

Again, historically, because of the diversity of our U.S. circuit, pricing decisions are made on a theater by theater basis, taking into account the particular market, demographic, film programming and the impact of our strategic investments. Without a subscription plan over the years, we have successfully driven attendance with value offers. For instance, the launch of San Diego's Best Movie Value program, where we offer an $8.50 ticket and a $6 endless popcorn has created incremental cash flow for certain theaters. Our Wake Up program where guests get a significant ticket discount and a free coffee for all shows before noon drives attendance for the opening hours of our cinemas.

Our After The Film program, where guests get a 50% discount off their F&B ticket after a movie has driven attendance and F&B sales. And our Mahalo Tuesdays in Hawaii, where we offer a big-ticket discount on Tuesdays, creates one of our highest attended days in our Hawaiian cinemas. We recognize that the changing dynamics of the marketplace and the popularity of the concept of subscription offer. We'll take the steps we need to appropriately address the changing marketplace. But we need to do it in a way that's deliberate and focused on financial sustainability.

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [5]

--------------------------------------------------------------------------------

Thank you, Ellen. The next question. Please clarify whether you do or don't include online ticket revenues as part of your average ticket price? When reporting Australia and New Zealand ATP and SPP figures, please clarify whether figures are in U.S. dollars and thus reflect currency headwinds? Gilbert?

--------------------------------------------------------------------------------

Gilbert Avanes, Reading International, Inc. - Interim CFO, Treasurer and VP of Financial Planning & Analysis [6]

--------------------------------------------------------------------------------

Online ticket revenue is not included in the calculation of ATP. When reporting Australian and New Zealand ATP and SPP under SEC reporting guidelines, they are reported in U.S. dollar unless specifically referred to in the local or functional currency.

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [7]

--------------------------------------------------------------------------------

Thanks, Gilbert. Our next question. Can you help provide more clarity on the ongoing legal developments? Is the guardian ad litem reference separate from the trustee ad litem contemplated by the court previously? We were under the impression that the bulk of the legal issues had already been resolved or were quite close to it, so this came as a bit of a surprise. Ellen?

--------------------------------------------------------------------------------

Ellen Marie Cotter, Reading International, Inc. - Chairperson of the Board, CEO & President [8]

--------------------------------------------------------------------------------

Some stockholders have requested an update on the trust litigation in California. Between myself, my sister, Margaret and our brother, Jim Carter, Jr. The trust litigation has been discussed at some length in our various SEC filings, and I'll refer you back to those filings for the more detailed discussions.

Reading is not a party to the California Trust litigation. However, our company has made limited appearances and submitted certain filings in the trust litigation to educate the court on the potentially material impact of certain actions on the company. To date, the costs of our company's participation have not been material, and our company's participation is subject to the oversight of our Special Independent Committee of the Board.

While there are a number of matters before the California Court in the trust litigation, Reading does not believe it likely that any imminent ruling would materially impact our company. However, if a material ruling impacting the company were to be made, the company will make prompt public disclosure and the Special Independent Committee will determine required actions in response, if any.

--------------------------------------------------------------------------------

Andrzej J. Matyczynski, Reading International, Inc. - EVP of Global Operations [9]

--------------------------------------------------------------------------------

Thank you, Ellen. Well, that marks the conclusion of the call. We'll wrap it up here. We are available for any follow-up calls, as we said before, so please do not hesitate to reach out to us either by e-mail, letter or phone. We appreciate you listening to the call today, and thank you for your attention.