U.S. Markets closed

Edited Transcript of RDI earnings conference call or presentation 14-Nov-19 10:59am GMT

Q3 2019 Reading International Inc Earnings Call

COMMERCE Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Reading International Inc earnings conference call or presentation Thursday, November 14, 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. - CFO, Executive VP & Treasurer

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

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 third 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 newly minted Executive Vice President, 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 third quarter earnings release on the company's website. We have adjusted 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 gains on insurance recoveries, legal expenses relating to extraordinary litigation, adjustments for gains/losses relating to property sales and any other items that can be considered nonrecurring in accordance with the 2-year SEC requirement for determining an item is nonrecurring, 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. And also, 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 third 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.

But before we start today, we're delighted to announce the Board's appointment of Gilbert Avanes as Executive Vice President, Chief Financial Officer and Treasurer. Since joining Reading in 2007, Gilbert has played a critical role in the growth of our company. His strategic financial planning and analysis expertise, coupled with his deep knowledge of our company's assets and their potential, make Gilbert an ideal fit for our CFO position. Margaret and I and the rest of the Board and management team look forward to continuing to work with Gilbert as we capitalize on our growth opportunities ahead. You'll be hearing from Gilbert shortly for a more detailed financial review following my remarks.

Now let's turn to our third quarter business highlights. At $70.5 million, our consolidated revenue for the third quarter of 2019 decreased 5% from the prior year's quarter, which have set an all-time record high for any third quarter. In spite of this decrease, this past quarter in 2019 represented the third highest of any third quarter on company record for consolidated revenue.

A few quarter highlights. Despite a dip in cinema attendance across our 3 circuits, our Australian cinema group delivered a record-breaking quarter, achieving in their functional currency the highest total cinema revenue of any third quarter on record. And despite challenges that I'll touch on shortly, our U.S. total cinema revenue was the second highest of any third quarter.

I'll note some third quarter highlights from our real estate segment, which includes our live theater business. In Australia, our third quarter 2019 real estate revenue was the highest of any third quarter on record in both U.S. dollars and Australian dollars. Our operating income represented the second best third quarter since 2011. Our live theater division delivered the second highest theater level cash flow of any third quarter on record. In the U.S., our 44 Union Square Tammany Hall project in New York City is nearing completion as we've finished the installation of the glass panels in the iconic dome and removed the crane, clearing the way for the storefronts to go in. And in New Zealand, we progressed planning efforts at our Courtenay Central development in Wellington and our industrial properties in the Manukau/Wiri areas of Auckland.

Let's go into some detail about our 2 business segments. Turning first to our global cinema business. The record-setting third quarter 2018 presented a very tough comp for us. The major studios released terrific movies, Crazy Rich Asians, Mission Impossible - Fallout, Ant-Man and the Wasp, Incredibles 2 and Jurassic World: Fallen Kingdom, along with fantastic releases from U.S. specialty film distributors, movies like Three Identical Strangers, Sorry to Bother You and Eighth Grade. The strength of that content for our unique circuit meant that the third quarter of 2019 had a lot of ground to make up.

Overall, our third quarter 2019 consolidated cinema revenue decreased by 6% to $66.7 million compared to the third quarter of 2018. Our cinema segment operating income decreased by 27% to $6 million. A few important factors impacted the global circuit results. First, as you know, we have a unique cinema circuit in the U.S. 10 of our current 24 theaters rely heavily on art and specialty film product, mostly through our Angelika brand. Arthouse audiences in the third quarter 2018 overwhelmingly enjoyed the previously mentioned movies as well as Won't You Be My Neighbor, Leave No Trace and The Wife. The film lineup in the third quarter 2019 simply didn't stack up.

Also, highlighting another unique characteristic of our U.S. circuit, our 9 theaters in Hawaii typically represent 35% of our overall U.S. cinema box office. During the third quarter 2018, Crazy Rich Asians overperformed in our consolidated theaters in Hawaii, and there was no comparable film in terms of box office during the third quarter of 2019 in Hawaii.

Our U.S. circuit lost 3 cinema locations in New York City. The leases underlying our profitable Paris Theatre, Beekman Theatre and the managed 86th Street Theater in New York City all expired during the second and third quarters of 2019. Our efforts to get new occupancy arrangements to extend our time in these spaces on commercially reasonable terms were unsuccessful for us.

In New Zealand, our Reading Cinemas in Wellington, historically one of the strongest performers in the New Zealand market and our circuit, remained closed due to seismic concerns that started in January of 2019. I'll touch on our Courtenay Central redevelopment plans in a few minutes. But lastly, unfavorable foreign exchange rates negatively impacted the U.S. dollar results of our Australia and New Zealand operations.

We do remain optimistic about the fourth quarter of 2019. While awaiting the release of Frozen 2 and Star Wars: The Rise of Skywalker, Joker has already delivered terrific fourth quarter box office results in each of our 3 countries and, importantly, at both our commercial and art theaters in the U.S. Impressively, Joker's become the first R-rated movie to top over $950 million worldwide.

And despite the streaming wars raging around us, we remain optimistic about the specialty arthouse world. Already in the fourth quarter of 2019, the debut of films like Pain and Glory and The Lighthouse keep us confident in the speciality theatrical business. Pedro Almodóvar's Pain and Glory outpaced all specialized subtitle films released this year. The Angelika in New York, with an opening week gross of $100,000, was a standout among theater showing Pain and Glory. And we enjoyed a strong opening of The Lighthouse, Robert Eggers' artsy period piece shot in black and white photography starting Robert Pattinson and Willem Dafoe. At the Angelika in New York, the opening week gross for The Lighthouse was $122,000.

Even though the ebbs and flows of the movie quality negatively impacted us this quarter, we continue to solidly execute on key strategic initiatives. More specifically, in the third quarter of 2019, we achieved record-high food and beverage per caps in all 3 circuits. Also, we broke records in the sale of our online tickets from our own websites and apps.

Let me go into some market detail, starting with the U.S. Due to a 14% attendance decline, our U.S. summer revenue decreased 8% to $36.8 million, which ultimately resulted in an 81% decrease in our U.S. cinema operating income. Our U.S. box office revenue for the third quarter of 2019 was down 12% while the U.S. industry box office for the period increased by almost 3% to $2.4 billion. As previously noted, this was largely due to our unique concentrations in both arthouses and theaters in Hawaii.

Our U.S. circuit specialty theaters box office revenue declined by 24% while the overall exhibition industry stay positive. The weaker slate of specialty films released in the third quarter of 2019 hurt not only Reading. We saw dramatic declines in the third quarter 2019 box office of other circuits who predominantly rely on specialty film.

Even with the lower attendance in the U.S., our increased F&B per caps for the third quarter of 2019 resulted in F&B revenue of $11.6 million, matching our results for the third quarter of 2018. Our strategic focus on F&B continued across our U.S. circuit and helped deliver another record F&B per cap at $5.57, which represents not only the highest for any third quarter at Reading in the U.S. but also outperformed the F&B per caps of the U.S. divisions of 2 top publicly traded exhibitors.

Our strategic capital investments helped propel our continued strong F&B performance. With the completion of our top to bottom renovation, our consolidated theaters in Mililani and Oahu in Hawaii now features 14 screens of recliner seating and a TITAN LUXE screen, a full F&B upgrade, including the sale of beer, wine and spirits, and a lobby redesign.

The third quarter 2019 marked the first full operational quarter of F&B upgrade at our consolidated theater in Mililani. Our fully renovated Reading Cinema in Murrieta, California, which features Spotlight, our first dining concept, achieved the highest of any third quarter overall F&B per cap. Also, the third quarter 2019 theater level cash flow of this Reading Cinema set a record for any third quarter.

Another key operational focus has been on the development of our self-ticketing capabilities through our websites, apps and social media platforms to generate revenue and income. Our team continues to improve our websites and apps by adding enhanced functionality to drive our guests to this experience and keeping them coming back. The third quarter of 2019 represented the highest third quarter on record for online ticket sales. Third quarter ticket sales from our own platforms increased 9% from the previous third quarter record.

During the third quarter of 2019, we also launched a TITAN XC screen with Dolby ATMOS at our Reading Cinemas in Rohnert Park, California with reserved seating. In addition, at this theater, we recently launched a value program, Sonoma's -- Sonoma County's best movie value, where we offer an $8.50 ticket, $10 TITAN tickets, $6 endless popcorn and other family concession discounts.

Now turning to Australia. Our total revenues increased by 3% to $24.3 million. On a functional currency basis at $35.1 million, our Australian Cinema circuit experienced its highest-ever third quarter box office revenue during the third quarter of 2019. Although our operating income in our Australian cinemas remained relatively flat when adjusted for the adverse foreign exchange, impacts the bottom line performance increased by 4% quarter-over-quarter on a functional currency basis.

Our F&B revenue increased 2% to $7 million when compared to the third quarter of 2018. We're also pleased to report that at $5, our F&B per cap or spend per head in functional currency for Australian circuit is the highest on record. Throughout the quarter, we continued to enhance our Reading Cinemas in Australia. At West Lakes in South Australia, we converted 2 screens to TITAN LUXE and added a Gold Lounge screen, each with recliner seating. In Harbour Town in Queensland, we converted 2 screens to TITAN LUXE with recliner seating. These Reading Cinemas also features 4 Gold Lounge auditoriums, upgraded F&B offerings and a lounge and bar area for all our guests. To date, 62% of our Australian Reading Cinemas feature select auditoriums with recliner seating, and 9 of our 21 locations include at least one TITAN LUXE screen.

As of today, our announced new cinema pipeline is primarily in Australia. We have 5 new lease arrangements for state-of-the-art cinemas, which we anticipate will be coming online sometime through the end of 2021, between now and the end of 2021. And we're actively investigating other cinema acquisition opportunities or new builds in this market.

We're on schedule to open our Reading Cinemas in Burwood, Melbourne in time for Star Wars: The Rise of Skywalker in December of 2019. This 6-screen cinema will be the first all-reclining cinema we have in Melbourne and will feature a TITAN LUXE and an elevated F&B program. In addition to the Reading Cinemas in Burwood, we have leases in place for an additional 25 new screens: at Traralgon, outside of Melbourne; in Jindalee in Queensland; and South City Square in Brisbane. And in September of this year, we announced a fourth lease, a new 6-screen state-of-the-art Reading Cinema with TITAN LUXE at Millers Junction, an exciting retail district in Western Melbourne. This new Reading Cinema's expected to open in 2020 will also feature all reclining seats and an elevated F&B program.

Turning now to our New Zealand cinema circuit. Our third quarter 2019 cinema revenue declined by 18% to USD 5.7 million versus the third quarter 2018 with attendance declining by 24%, and our third quarter 2019 cinema operating income decreased by 25%. The weakened New Zealand dollar, a 3% decrease versus third quarter 2018, impacted the U.S. dollar results for our New Zealand circuit. But most importantly, our cinema revenue was adversely impacted by the temporary but ongoing closure since January of 2019,of our Reading Cinema at Courtenay Central in Wellington due to seismic concerns. As I'll touch on in a few minutes, during the third quarter, we continue to work through our redevelopment plans for our Reading Cinema at Courtenay Central.

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 late June 2019. While this cinema will help service the Wellington area with only 3 screens, it is not and will not make up for the temporary closure of our cinema at Courtenay Central. Again, reflecting the strength of our global operating initiatives at $4.58, our F&B cap -- F&B per cap on a functional currency basis in New Zealand represented the highest for any quarter ever.

Now turning to our global real estate business. Real estate revenue decreased by 4% to $5.5 million while our real estate operating income increased by 18% to $1.5 million primarily due to a 10% decrease in operating expenses in all 3 portfolios. Operating income increased quarter-over-quarter despite a 45% decrease in real estate revenue for our New Zealand operations. The decrease was primarily attributable to the ongoing closure of most of the net rentable area of Courtenay Central and the weakening New Zealand foreign exchange rate.

Now let's start with our U.S. real estate business. As the current main contributor to our U.S. Real estate segment. Our live theaters experienced an outstanding quarter in the third quarter of 2019. Our live theater revenue saw an increase of 26%, and our theater level cash flow increased by 74% when compared to the same period last year. Our Royal George Theatre had its strongest third quarter theater level cash flow on record. Open Run shows, Late Nite Catechism and Bible Bingo, have continued to show success. Miracle turned out to be a major hit among its targeted audiences in Chicago, and we continue to believe that the 2019 year should close out strong as 2 new shows, I'm Not a Comedian...I'm Lenny Bruce and Holy Ghost Bingo have already been added to the show lineup.

At the Minetta Lane Theatre in New York City, in April 2019, we extended our license agreement with Audible, a subsidiary of Amazon through March of 2020 with an option on the part of Audible to further extend that license for an additional year through March of 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.

Moving on to our historic Tammany Hall project at 44 Union Square in New York. Last month, we completed the iconic dome with the installation of the glass roof panels. We've removed the crane from the site, which has allowed us to begin putting up the shop fronts. Inspections are proceeding at pace, and we anticipate filing for our core and shell temporary CO in the short term. We believe this project turned out to be even more impressive than we anticipated with breathtaking views of this part of New York City. The current images of this unique addition to Union Square worth looking at on our 44 Union Square Instagram page. Prospective tenants viewing the building have been very enthusiastic and complementary about the space. We continue to negotiate a long-term lease for about 90% of the net rentable area of the building.

I'll also note that the Midtown South office market remains strong. Industry reporting indicates that leasing velocity surpassed between 3.2 and 3.6 million square feet, the largest quarterly total quarter-over-quarter since 2014 and is up 150% year-over-year, dominated by companies like Google and Publicis Groupe. Also, overall vacancy declined 140 basis points year-over-year from 8.8% to 7.4% as a result of more development. In our project, the remaining retail space continues to be marketed for retail use by our exclusive broker, Newmark. However, as a practical matter, this remaining space cannot be leased until we complete the negotiations with the primary tenant for the building and we know precisely how much retail space will remain available.

Turning to Australia. We're pleased to report that our Australian real estate segment reported its highest third quarter revenue at $3.9 million. Our Australian real estate revenue increased by 2% to $3.9 million despite the effects of the weakening of the Australian dollar by 6.2% in the third quarter of 2019. On a functional currency basis, our Australian property level cash flow increased by 11% in the third quarter of 2019 when compared to the same period in 2018. Our real estate operating income increased by 43%,supported by a decrease in property costs and general and administrative expenses by 22% and 36%, respectively.

Our main Australian centers, Newmarket Village in the suburb of Brisbane, Auburn/Redyard in the suburb of Sydney, Cannon Park in Townsville and the Belmont Common outside of Perth, showed increases in property level cash flow over the third quarter of 2018. At Newmarket Village, we're pleased to announce that our new F&B precinct under our Reading Cinemas is now 100% leased and fully occupied with tenants. Also, we recently announced that a space -- also, we recently announced that space for Anytime Fitness, a leading gym operator in Australia, is being constructed on the second level of the original wing of the Newmarket property. This new tenant will have a positive impact on the foot traffic and customer patronage at the eastern end of Newmarket Village.

Turning to our assets in New Zealand. Our New Zealand real estate revenue decreased by 45% versus the third quarter of 2018. This decrease was primarily attributable to the temporary and ongoing closure of parts of Courtenay Central in Wellington, further negatively impacted by the weakened New Zealand dollar.

At Courtenay Central during the third quarter, our focus remained on the detailed planning and feasibility work for redevelopment of this existing building as opposed to the Wakefield and Tory Street properties. We're focused on not only asset preservation through seismic strengthening works, but also creating a world-class state-of-the-art cinema and an improved ground floor offer through the potential launch of a vibrant food hall concept. Looking forward, we believe these comprehensive planning efforts will support a better economic case for proceeding with our goal of reimagining the existing Courtenay Central space as a dynamic community-oriented entertainment and retail destination.

Just this year, UNESCO named Wellington as a UNESCO Creative City of Film. This newest international accolade is in addition to the consistent raking of Wellington as one of the top cities in the world in which to live.

Turning now to our 70.4 acres of rezoned and undeveloped land in Manukau/Wiri, one of Auckland's premier industrial markets. As of October 2019, the Auckland Council is in the process of granting Reading along with our adjoining landowners, who collectively make up the Southern Gateway Consortium, conditional approval to begin the detail design phase of the necessary infrastructure works. To date, only preliminary design and town planning costs have been incurred. These costs have been shared by the Southern Gateway members in proportion to their land holdings.

Before we turn to your questions, I'll turn the call over to Gilbert for a financial review of the third quarter of 2019.

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

Gilbert Avanes, Reading International, Inc. - CFO, Executive VP & Treasurer [3]

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

Thank you, Ellen. The 2019 attendance and the box office results were the result of weak specialty film product in the U.S. when compared to the prior year period. However, we continue to look forward to the fourth quarter of 2019 for better box office results with the release of Frozen 2, Star Wars: Rise of Skywalker and Jumanji: The Next Level. These films are also expected to set up the first quarter of 2020 for success.

Consolidated revenue for the third quarter of 2019 decreased by 5% to $70.5 million. For the 9 months ended September 30, 2019, revenue decreased by 11% to $208.1 million compared to the same period in the prior year. As previously mentioned, this was primarily driven by a weak specialty film product at our U.S. specialty theater. In addition, we're competing against a banner year in 2018. These combined factors resulted in a decrease in attendance in our U.S., Australia and New Zealand circuits. These results were further impacted by a 7.7% decline in Australian dollars and a 5.1% decline in the New Zealand dollar for the 9 months ended September 30, 2019, over the comparable period in 2018.

As mentioned earlier, our cinema operation results in New Zealand were also adversely impacted by temporary closure as a result of the seismic concerns of our cinema at Courtenay Central in Wellington, which used to be the top performer in the New Zealand circuit. At the same time, the partial closure of Courtenay Central property was one of the key drivers of the unfavorable results of our real estate segment in New Zealand.

Net income to RDI common stockholders decreased by 30% to $0.9 million for the third quarter of 2019 compared to the same period in the prior year. Basic earnings per share for the quarter ended September 30, 2019, was $0.04, a decrease of $0.02 from the prior year quarter. For the year-to-date September 2019, net income to RDI common stockholders declined by 87% to $1.2 million. Basic earnings per share declined by $0.36 to $0.05 from the same prior year period driven by the decrease in revenue from both our cinema and real estate business segments.

Non-segment G&A expenses for the quarter ended September 30, 2019, decreased by 7% to $4.5 million compared to the same period in 2018. For the 9 months ended September 30, 2019, non-segment G&A decreased by 15% to $14.2 million. This was primarily the result of a lower legal expense when compared to the same period last year.

Income tax expense for the quarter and 9 months ended September 30, 2019, decreased by $0.9 million and $3.5 million, respectively, compared to the equivalent prior year period. The change between 2019 and 2018 was mainly related to a lower pretax income in the first 9 months of 2019.

For the third quarter of 2019, our adjusted EBITDA decreased by $1.7 million to $9.2 million compared to the same prior year period. Year-to-date adjusted EBITDA was $26 million, representing a $13.1 million decline against the first 9 months of 2018. These decreases are primarily due to lower net income in the first 9 months of 2019 offset by decrease in legal fees.

Shifting to cash flow. For the first 9 months of 2019, net cash provided by operations decreased by $8.3 million to $10.8 million when compared to the prior year. This was primarily driven by $5 million lower cash inflow from operation activities as well as a $3.3 million decrease in net operating assets.

Cash used in investment activities decreased by $18.6 million to $33.1 million during the first 9 months of 2019 compared to the same period last year due to intentionally slowing our cinema refurbishment activities and the substantial completion of upgrading and expansion of our Newmarket and Auburn/Redyard ETC during 2018. However, it is anticipated that spending on our cinema activities will pick up over the remaining of the year.

Cash provided by financing activities was $18.3 million during the 9 months ended September 30, 2019, and was mainly related to $58.7 million of the new borrowings offset by $31.7 million of loan repayments. Proceeds from these new borrowings are related principally to the ongoing construction of our 44 Union Square project in Manhattan and the funds that capital improvements in our cinemas and real estate segments as well as the acquisition of Devonport in Australia.

Turning now to our financial position. Our total assets increased to $657.8 million compared to $439 million at December 31, 2018. This large increase of $219.1 million was primarily driven by the implementation of the lease accounting standard effective January 1, 2019, which also resulted in a similar increase in our liabilities. Our financial positions remain strong with $164 million in stockholders' equity supporting our assets. Additionally, with $8.7 million of cash on our balance sheet at September 30, 2019, we're also in a strong liquidity position. Of our total cash balance amount, $2.7 million and $1.1 million was held by our Australian and New Zealand subsidiaries, respectively.

We used the amounts that we received from our cinema and real estate business to pay down our long-term borrowings and realize savings from lower interest expense. We then settled our operating expenses, generally with a lag within traditional trade terms. This generates a working capital deficit, which is positive for the company. We manage our cash, investment 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 September 30, 2019, there was approximately $84.1 million of additional capacity under our borrowing arrangement in the U.S., Australia and New Zealand with $66.5 million of that $84.1 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 jurisdictions where we do business. On November 5, 2019, we extended our Bank of America facility to October 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. As usual, 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 making ourselves available after the webcast to address any additional questions and encourage you to continue reaching out to us.

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

Questions and Answers

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

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

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

The first question, how is the Board thinking about capital allocation in light of RDI approaching the $25 million limit on the repurchase authorization? Beyond the large onetime share repurchase, how do you view the pace of share repurchases? The company is getting low on repurchase authority, given the recent pace. Is a new authorization in the cards?

Okay, I will handle that response. In evaluating how best our return value to shareholders, in Q3 2019, we decided to make a substantial purchase under our authorized stock buyback program. During the 9 months ended September 30, 2019, the company invested $11.3 million to repurchase 856,563 shares of Class A nonvoting common stock, of which $7.8 million was paid in cash and the $3.5 million remainder through the issuance of a purchase money promissory note due and payable on September 18, 2024. As a result, at September 30, 2019, the company had used $20.1 million of the $25 million authorized by the company's Board of Directors in 2017 to repurchase Class A nonvoting common stock.

We did receive a number of inquiries into whether the counterparty on the note used to buy the 407,000 shares of Class A nonvoting common stock was a Cotter or an entity related to a Cotter family member. I can confirm that the counterparty was not a Cotter or any entity related to a Cotter family member. We negotiated to pay the bulk of the purchase price through a 5-year promissory note so as to preserve capital for our various refurbishment and real estate development projects. The interest rate on this loan is 5%, far below our anticipated growth rate over this period. As the transaction was privately negotiated, no brokerage or investment banking fees were incurred. We obviously have more flexibility where we are able to repurchase equity for a note payable over a reasonable period of time at a reasonable interest rate.

Similar to any of our previous stock buyback programs, when the allotted amount is spent, we will request the Board to consider another authorization. We are maintaining a balanced approach to our 3-year strategy. Where we see the best opportunities to use our resources, we will invest accordingly. We are an operating company in 2 key segments. And as such, we will continue to work toward our goal of directing capital to areas where it can drive the greatest long-term value through strategic investments in our cinemas and real estate development projects.

Another question came regarding the ground lease purchase. Please discuss the reasoning and plans behind the purchase of the ground lease in lower Manhattan. Ellen?

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

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

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

The ground lease our stockholder's referring to is at the Village East Cinema in the East Village of New York City, which is about a 15-minute walk from the Angelika Film center in SoHo. We delivered a notice to exercise our $5.9 million option based on the determination by management and our Audit and Conflicts Committee that there's substantial value in the underlying lease.

Once we complete the exercise of our option, we will eliminate a layer of rent paid to the current ground lessee, Sutton Hill, thereby reducing our overall occupancy costs and, in our view, providing an adequate return on the $5.9 million exercise price. Upon exercise, we'll be in privity with the ground lessor for more than a decade, unless we buy the property.

Due to the landmark status of the building, the uses are unlimited. Today, the cinemas program, together with the Angelika Film Center in New York, in the near term, our goal is to improve the theater level cash flow, by adding recliner seating to select auditoriums, improving the F&B offer and rebranding it an Angelika Film Center.

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

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

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

Thanks, Ellen. Thanks for that clarification.

We have also refused -- we received several questions relating to capital expenditure since 2015 and our return on investment expectations as well as the impact to our EBITDA. Gilbert, can you address this?

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

Gilbert Avanes, Reading International, Inc. - CFO, Executive VP & Treasurer [4]

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

Since 2015, we have purchased several real estate properties. The Cannon Park Centre in Townsville, the Telstra building in Harbour, our U.S. corporate office in Culver City. In our existing new market site, we've increased our gross leasable space as well as open our new market cinema. The Union Square redevelopment project in New York City is nearing completion, and we're actively working on its leasing. We have also added new cinema locations: Olino in Hawaii, Devonport in Tasmania, LynnMall in Auckland and the Hutt in Wellington. CapEx has been spent upgrading our cinema circuits with state-of-art seating, premium food and beverage offering.

Our ROI for our real estate investment is in the low teens and mid-teens for our cinema investment. Foreign exchange volatility, assets which have fallen out of our portfolio as well as assets that are not yet in revenue-generating cycle, all have to be considered in our overall return on investment mix. Also, as part of any operation, assets that have been generating the necessary return may now be impacted by competition that did not exist at inception. We continuously monitor our investment on an asset-by-asset basis to ensure we are generating the highest return based on the given economic conditions.

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

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

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

Thanks, Gilbert.

The question -- last question we have here is, given that the decision to close Courtenay Central is at management's discretion, please provide more detail on why this decision was made and for what reason. Ellen?

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

Ellen Marie Cotter, Reading International, Inc. - Chairperson of the Board, CEO & President [6]

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

At the end of last year, we commissioned a detailed seismic assessment of our Courtenay Central building. That report highlighted potential risk to the cinema levels of Courtenay Central if a major seismic event were to occur. These risks were unrelated to the 2016 earthquake. We immediately decided to close the building while we further investigated. Our top priority is and has always been the safety of our guests, tenants, employees and the communities around our centers. That decision was based on our proactive approach to safety.

Following further investigation with our engineering and consultant team, we reopened certain areas of the building. But the cinema and ground floor remained closed. While we could have, with appropriate disclosures to our patrons, legally continue to operate in this location, as a company, we decided that the safety of our various stakeholders was the paramount concern.

Over the last several months, we completed a detailed analysis of the seismic strengthening work required to achieve an acceptable seismic rating. We have now coupled that work with development plans to upgrade our Reading Cinemas and the ground floor.

Courtenay Central opened in the year 2002. It's been our intention for the last few years to upgrade the building. This unfortunate closure event has, to some extent, caused it to accelerate our plans to upgrade the center that's almost 20 years old. Our goal now is to deliver a redeveloped Courtenay Central that offers the Wellington community and its tourism visitors a dynamic and vibrant venue.

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

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

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

Thank you, Ellen.

With that, we mark the conclusion of the call. We are available for any follow-up calls, so please do not hesitate to reach out. We appreciate your listening to the call today and thank all of you for your attention.