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Edited Transcript of RDI earnings conference call or presentation 20-Mar-19 10:59am GMT

Q4 2018 Reading International Inc Earnings Call

COMMERCE Mar 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Reading International Inc earnings conference call or presentation Wednesday, March 20, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Presentation

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

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Thank you for joining Reading International's earnings call to discuss our 2018 fourth quarter and full year results. My name is Andrzej Matyczynski. I'm Reading's Executive Vice President of Global Operations. With me are Ellen Cotter, our CEO; and Gilbert Avanes, our Interim Chief Financial Officer and Treasurer.

Before we begin the substance of the call, I'll start by stating, as usual, 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 2018 fourth quarter and full year earnings release on the company's website.

In today's call, we 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-K.

So with that behind us, Gilbert will be talking to us about our financial results for the fourth quarter and full year a little later. But first, I'll turn the call over to Ellen, who will update us on the company's 2018 operations for what has turned out to be another great year for Reading.

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

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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.

Before we start today, I also want to introduce Gilbert Avanes, who's been with Reading for over 12 years and was recently appointed our Interim Chief Financial Officer and Treasurer. As most of you know, Dev Ghose retired from Reading in late January of this year after having served as our CFO and Treasurer for almost 4 years. I want to personally thank Dev for his service to Reading, which experienced significant growth during his tenure. We're pleased to have Gilbert step into the interim role. You'll be hearing from Gilbert shortly, and he'll provide a more detailed financial review following my remarks.

Now let's turn to our fourth quarter and full year results. We were all very pleased with the company's 2018 results, as we set numerous records across our cinema and real estate businesses and footprint. Reading's 2018 total revenues of $309.4 million, which increased 11% from 2017, set an all-time record high. Our operating income of $24.1 million, which increased 16% from 2017, also represented a record high.

Our 2018 EBITDA was $46.9 million. 2018 net income was $14.4 million, and earnings per share was $0.62 per share. Each of these 3 metrics would have been a record had it not been for nonrecurring gains or tax benefits reflected in 2014, 2015 and 2017. Taking into account these nonrecurring events in prior years, Reading had a stellar operational year in 2018.

Our strong execution on our global cinema strategy helped drive our record results and was supported by an amazing and diverse slate of major studio movies and independent films. In 2018, in native currency, each of our U.S., Australian and New Zealand cinema divisions delivered all-time record highs for attendance, box office, F&B revenues and theater level cash flow.

With respect to our real estate segment, our Australian property business delivered its highest operating income in native currency ever, and our live theater division, which is included in our real estate segment, delivered its second highest operating income except for 2017, when we received a nonrecurring reimbursement of our legal fees from the STOMP arbitration award.

We made real progress on our signature U.S. real estate redevelopment project. The historic Tammany Hall at 44 Union Square in Manhattan is now more than 80% complete. And while no assurances can be given at this time, we're in exclusive negotiation on leases representing approximately 90% of the net leasable area of the building.

Also in 2018, we strategically enhanced the development potential of Auburn/Redyard outside of Sydney by acquiring a public auction, the Telstra building, which is leased through July 2022. In addition to adding this income-producing property to our portfolio, this acquisition provides compelling benefits for maximizing the value and development plans of our ETC, given the Telstra building literally sits in the middle of the property. The leaseback to Telstra gives us a multiyear runway to carefully develop plans for integration of this property into our center.

Turning to the fourth quarter of 2018. Despite a softer slate from the major studios in Q4 of 2018, Reading's fourth quarter total revenue set an all-time record high for any fourth quarter in company history, increasing 4% to $75 million. Our operating income of $5.2 million also set a record high for any fourth quarter. And our fourth quarter 2018 EBITDA was an all-time record for any fourth quarter at $11 million, which was a 33% increase over the Q4 of 2017. And these positive U.S. dollar results were achieved despite a softening of the Australian and New Zealand dollars as well as having certain strong theaters closed for renovation during 2018.

I'll now discuss our global cinema business in more detail. Our Q4 2018 total cinema revenues increased by 5% to $71.1 million compared to Q4 of 2017. And our Q4 cinema operating income increased by 13% to $8.3 million compared to Q4 of 2017. Our U.S. cinema group drove this increase with an 11% increase in F&B revenues.

While the industry box office was not as strong as Q4 of 2017, our global circuit enjoyed healthy returns from A Star is Born, Bohemian Rhapsody and Venom. To me, the diversity and variety of these films speak to the overall health of the business. It's always reassuring when the audience widely embraces totally original films.

Turning to the full year of 2018. Our total cinema revenues increased by 12% to $294.2 million versus 2017. Our U.S. cinema circuit recorded the highest total revenue ever in 2018. And we set this record despite our Consolidated Theatre in Mililani on the island of Oahu being closed for a full top-to-bottom renovation for about 3 months in 2018 and being without a state-of-the-art kitchen for the holiday season. Additionally, our Reading Cinema in Murrieta, California did not have an elevated F&B result during Q1 2018 since we only launched the full cinema F&B offer and spotlight in Q2 2018.

Both our Australian and New Zealand cinema divisions set records for the highest total revenue ever in 2018 in their local currencies. Amazing movies like Black Panther, Avengers: Infinity War, Incredibles 2 and Jurassic World: Fallen Kingdom delivered strong result across all of our commercial cinemas in 2018. In the U.S., our Angelika Film Centers outperformed the prior year, thanks to wonderful movies like Free Solo, Three Identical Strangers and RBG.

In 2018, our U.S. and New Zealand divisions also realized their highest ever F&B per capita in their local currencies, which further reinforces our strategy to invest in elevating the guest experience with food and beverage offerings that cater to our local markets.

Collectively, these terrific results and our strong performance drove our 2018 cinema segment operating income to $39.3 million, which represented a 19% increase over 2017 and was the highest ever on record. And finally, in 2018, the box office of each of our cinema divisions in the U.S., Australia and New Zealand outperformed their respective industry box office by approximately 6 or more percentage points on a functional currency basis.

Focusing specifically on the U.S. cinema division. The following Q4 2018 metrics for the U.S. cinema business represented an all-time record for any previous fourth quarter. Those metrics were total box office, F&B revenues, total revenues, box office per capita and F&B per capita. And our Q4 2018 box office per capita was also the highest quarter ever on record for the U.S. cinema circuit, reflecting the success of our market-by-market, theater-by-theater pricing strategy.

Our full year 2018 total revenues grew by 17% to $162.3 million due to a 9% increase in attendance, an 8% increase in average ticket price and 5% increase in F&B per cap. Each of these top line items led our team to deliver 2018 U.S. cinema segment operating income of $12.7 million, which was a 76% increase versus 2017 and set an all-time record.

The following metrics for the full year of 2018 for the U.S. cinema business set all-time record highs: attendance, box office revenue, box office per capita, F&B revenue, F&B per capita, total revenue and theater level cash flow. This exceptional performance in the U.S. was due to several factors: movies from the major studios reflecting both superior quality and variety, great films from the specialty world that resonated with and were embraced by a wider audience and the successful execution of our global cinema strategy.

Our strategically timed and placed CapEx investments paid off. The communities where we renovated certain theaters love their new luxury recliner seating, TITAN LUXE presentations and upgraded food and beverage menus. Lastly, I'll note that our U.S. circuit outperformed the 2018 industry box office by almost 11 percentage points in 2018.

Turning to Australia and New Zealand. Both our Australian and New Zealand cinema circuits in their native currencies also set operational records for their businesses in both the fourth quarter of 2018 and for the full year of 2018. In their native currencies, the following Q4 2018 metrics for each of the Australian and New Zealand cinema businesses set all-time records for any previous fourth quarter: attendance, total box office, F&B revenues, total revenues and theater level cash flow.

Again, in their native currencies for the full year of 2018, the following metrics represented record highs for each of the Australian and New Zealand cinema divisions: attendance, box office revenue, F&B revenue, total revenue and theater level cash flow. Each of these top line items led our team to deliver in Q4 2018 and full year 2018 Australian and New Zealand theater level cash flows that were their highest fourth quarter and full year on record in their functional currencies.

Our Q4 2018 Australian total cinema revenue increased by 5% or $1.2 million, primarily due to a 7% increase in attendance and a slight increase in the average ticket price, offset by an 8% decrease in F&B per capita. In 2018, our Australian total cinema revenues increased by 6% versus 2017 or $5.4 million to $102 million, primarily due to a 4% increase in average ticket price, a 3% increase in attendance as well as a slight increase in F&B per capita.

2018 was the first full year of operation of our new Reading Cinema at Newmarket Village outside of Brisbane, which features a TITAN LUXE and 3 Gold Lounge auditoriums. Like the U.S., the strong commercial movies drove attendance to our Australian premium auditoriums. Our 10 TITAN-branded auditoriums and 35 Gold Lounge or premium screens in Australia generated both higher average ticket price and F&B per patron. These top line items helped drive the 2018 Australian cinema segment operating income to $21.3 million.

In New Zealand, our Q4 2018 total cinema revenue remained flat since the 3% increase in attendance and a 3% increase in average ticket price was offset by a 4% decrease in F&B per capita during the quarter. But our 2018 total cinema revenues nevertheless increased by 8% or $2.2 million, mainly due to an 11% increase in attendance coupled with a 2% increase in average ticket price and F&B per capita.

Our 2018 U.S. dollar results for our Australian and New Zealand circuits were negatively impacted by a weaker Australian and New Zealand dollar. The 2018 box office for our Australian cinema division outperformed the Australian cinema industry by almost 6 percentage points on a functional currency basis. And the 2018 box office of our New Zealand cinemas division outperformed the New Zealand cinema industry by almost 6% -- 6 percentage points on a functional currency basis.

In 2018, we continued to execute on our global cinema strategy to deliver engaging experiences to our guests. We accomplished this not only through the most comfortable cinematic experience but also by featuring state-of-the-art presentation with premium auditoriums and sound as well as uniquely designed lobby spaces and the elevated F&B offerings that match our local markets.

We invested $24 million in cinema upgrades in 2018, which was primarily spent on adding recliner seating in 30 screens, converting 3 auditoriums to TITAN, in addition, to select upgrades to our F&B offer through newly outfitted kitchens, digital infrastructure and adding liquor licenses.

In 2018, in the U.S., we started a top-to-bottom renovation at our Consolidated Theatre in Mililani, Hawaii. We converted all 14 screens to recliner seating and added a TITAN LUXE screen. The theater was closed for renovation during Q3 and Q4 and reopened for Thanksgiving but prior to completion of a fully enhanced F&B offering. Completion of the kitchen work was delayed due to building permit backlogs in Hawaii. Like our Reading Cinemas at Cal Oaks, we anticipate launching a full F&B offer and lobby upgrades in the following quarter, so that'll be the Q2 2019 at the Mililani theater.

By the end of 2018, 94 screens or 38% of our total U.S. screens have been converted to luxury recliner seating. By the end of 2018, we also had 9 premium branded auditoriums, TITAN or IMAX, and 14 theaters featured elevated F&B.

In 2018, in Australia, we renovated our Reading Cinemas at Elizabeth in South Australia and Charlestown in New South Wales, each of which now have 2 premium screens and 1 TITAN LUXE, all with recliners. In 2018, at our Reading Cinemas at Redyard in Auburn just outside of Sydney, we converted 3 auditoriums to premium screens and converted 1 auditorium to a TITAN LUXE, again all with recliners. We also began the predevelopment work to create 2 additional Gold Lounge screens and replace the kitchen at our Reading Cinema in Harbour Town in Queensland.

By the end of 2018, 42 screens or 21% of our total Australian and New Zealand screens were converted to luxury recliner seating. By the end of 2018, we also had 12 premium-branded auditoriums.

Regarding the performance of our upgraded cinemas versus our nonupgraded cinemas, while we do not provide specific return numbers on a theater-by-theater basis, we believe that our company's outperformance to the market in 2018 demonstrates that our investment and the operating strategies are paying off and enhancing value, especially in the U.S.

Turning to our F&B initiatives. The U.S., New Zealand and Australian cinema divisions set record fourth quarter F&B revenues on a functional currency basis. All countries also set records for the highest F&B revenue ever in company history for the full year of 2018, again on a functional currency basis.

The U.S. and New Zealand cinema divisions set an F&B per patron record for the full year of 2018 on a functional currency basis, and the U.S. division also had the highest fourth quarter F&B per patron for any fourth quarter on record. These improving metrics are a result of the upgraded quality and variety of our food in certain cinemas and the addition of beer, wine and/or spirits.

In the U.S., our fourth quarter 2018 F&B revenues increased by 11% over Q4 of 2017, with a significant percentage of that increase attributed to our newly renovated Reading Cinema in Murrieta, California, which features Spotlight, our first dine-in concept in 6 auditoriums. In the U.S., our fourth quarter F&B per cap at $5.18 again set a record for any fourth quarter.

The F&B per patron at our renovated theaters in Murrieta, California; Manville, New Jersey and on the island of Oahu in Hawaii helped boost our overall cinema circuit result. The 2018 F&B revenues for our U.S., Australia and New Zealand cinema divisions increased by 15%, 3% and 13%, respectively. Our renovated theaters continue to assist us in setting these positive trends.

In 2018, we continued to improve and expand our digital marketing and infrastructure to engage guests and drive revenue. With our improved U.S. websites and apps and global online sales infrastructure, we set a Q4 record for online sales, consisting of 24% of our global box-office revenue, which is a 14% increase compared to Q4 of 2017. In 2018, we surpassed our goal and collected $4.47 million from global online convenience fee revenue, which is up almost 50% from $3.03 million in 2017.

Now let me highlight a few new Australian cinema opportunities. In January 2019, we acquired a proven 4-screen cinema in Tasmania and rebranded it a Reading Cinema. Our cinema pipeline includes 4 new Reading Cinemas in Australia. Two of these locations have been previously announced, South City Square in Brisbane and Traralgon, outside of Melbourne.

Earlier this year, we announced that Reading will lease a new state-of-the-art cinema on the Burwood property that we sold to Frasers in 2014. This theater holds special significance to us since our founder, James J. Cotter, Sr. always envisioned a terrific theater on the Burwood land when he sold the property, specifically -- and he specifically reserved a right of first refusal to be the cinema tenant for the project.

The theater will feature recliner seating in all auditoriums, represent Melbourne's first premium TITAN LUXE auditorium with Dolby ATMOS sound and offer a new and elevated F&B program. The theater is under construction and targeted to open around the end of 2019.

We also signed a lease for a new state-of-the-art 6-screen cinema with TITAN LUXE in Queensland at the Direct Factory Outlet mall in Jindalee, which is currently undergoing a major renovation. This theater or Reading Cinema is expected to open in Q3 2020.

Now let's turn to our real estate business. Our Q4 2018 real estate total revenues, which includes our live theater revenues, at $6 million declined 6% or $407,000 versus Q4 of 2017. Our Q4 2018 real estate operating income was $1.5 million and decreased by 38% or $931,000.

Our full year 2018 real estate revenue at $24.2 million increased slightly or about $250,000 from 2017. And the full year 2018 real estate operating income at about $6.4 million was 21% lower than 2017.

In 2018, our Australian real estate business delivered a property level cash flow that set an all-time record high. This AUD 14.7 million cash flow reflects the addition of 37 tenancies or 22,201 square meters of rentable space since 2014 and represents a 47% increase in property level cash flow over the last 5 years. We believe that these results are impressive given the retail challenges faced by landlords across Australia.

These positive division operating income results were offset by the recognition in 2017 of a nonrecurring $1.8 million in connection with the STOMP arbitration award; the nonrecurring gain on business interruption insurance recovery claim for the Courtenay Central ETC recognized during 2017; increases in depreciation and amortization in 2018, primarily driven by capital improvements at Newmarket Village and Auburn/Redyard; and a weaker Australian and New Zealand dollar.

Now let's talk about our entertainment-themed centers in Australia. 2018 marked the first full year of operation of our Newmarket Village expansion, which includes our new Reading Cinema and over 10,000 square feet of additional F&B space. Our Newmarket Village project was funded internally and is currently approximately 98% leased.

With respect to Auburn/Redyard outside of Sydney, the strategic acquisition of the Telstra building in 2018 for AUD 4.5 million will provide us great flexibility and optionality in the future. Including this purchase, we've added 6 incremental tenancies to Redyard since 2016. And we completed a very attractive upgrade of our common areas with the new floor, lighting and interactive water feature and an upgrade to the Reading Cinemas.

During the first 9 months of 2018, we continued the repositioning of our property known as the Belmont Common located in the Perth suburb. Our center now features 3 new leading restaurants: Dome Café, Tavolo and Tao Café, and a nail bar upgraded common areas and 2 new premium screens at our Reading Cinemas. We only have 1 vacancy but anticipate having a new tenant to announce soon.

Turning to our New Zealand assets. During 2018, we continued working through the reimagination of Courtenay Central. You'll recall that our master planning focused on 3 parts: our Wakefield Street property directly across from the recently announced Wellington Convention Center, which is estimated to open in 2022; our to be constructed 9-level carpark on the Tory Street property; an existing Courtenay Central building originally constructed in the year 2001 and home to our 10-screen Reading Cinema. You'll recall that we envisioned integrating these 3 phases and creating a more sizable development with the potential for a hotel, incremental entertainment uses, an upgraded premium Countdown supermarket, a ground floor of retail in the car park, upgraded food hall concept and creative office space.

In January 2019, our focus shifted 100% to the existing Courtenay Central building when we made the decision to close the building after we received a draft engineering report identifying potential risks in the cinema portion of our building if a major seismic event were to occur. We took this action voluntarily and out of an abundance of caution and in furtherance of our guiding principle that the safety of our guests, employees and tenants is our first priority. A few weeks following our initial closure and following advice of our engineers, we reopened certain third-party tenancies. Our Reading Cinemas and the group of tenants whose locations could be adversely impacted by the failure of the cinema portions of the property remained closed pending further evaluation.

We are continuing to evaluate information, seismic and otherwise, on the existing structure to determine the best course of action for our stockholders and the Wellington community in the most expeditious and thorough manner. We do remain enthusiastic about our opportunities in Wellington, a dynamic, creative and thriving capital city, which has twice been named by Deutsche Bank as the best city in the world in which to live. We'll expect to have further updates for you on Courtenay Central throughout the rest of the year.

Turning to our other major asset, New Zealand. We own 2 undeveloped parcels, representing 70.4 acres or 285,000 square meters in the Manukau-Wiri industrial submarket, which is now considered to be one of Auckland's premier industrial and business districts. Our main parcel is just off State Highway 20B, controlled by the New Zealand Transport Agency and is one of the main connector roads to the Auckland International Airport. The entrance to our main property zoned light industrial, is on Prices Road, and our second parcel, zoned heavy industrial, is on the McLaughlin Road.

In 2018, we continued to work with the owners of neighboring properties, who were together with us commonly known as the Southern Gateway Consortium, to advance the infrastructure works required by the Auckland City Council to start industrial development on our collective sites. This work resulted in the filing in November 2018 of our first resource consent application for certain infrastructure works, a roading and bridge application for Prices Road. We expect a decision on our application in the next quarter.

In 2018, we also commenced discussions about a formal cost-sharing agreement for infrastructure works with both the members of the Southern Gateway Consortium and other landowners in the area, who stand to benefit from the infrastructure upgrades. The Auckland industrial property market shows little sign of abating. The scarcity of quality land with good access to the airport and key transport modes has contributed to rising land prices in the area.

Further, given the population growth seen in Auckland during the past decade, demand has continued to grow for quality industrial, office and warehouse space, also supporting our position to maintain control of the process while we consider our future development options in the market.

According to industry reports, all levels of industrial rents have increased over the last 12 months and are projected to rise further as demand exceeds supply. In the third quarter of 2018, the acquisition of the Foodstuffs Distribution Centre in Auckland by Goodman Property Trust at NZD 93 million set a new record price for single-asset transaction in the Auckland industrial market.

Now let's turn to our real estate business in the United States. First, I'll highlight that our 2018 operating results were positively supported by the license agreement we entered into with Audible, Inc., a subsidiary of Amazon at the Minetta Lane Theatre. Today, Audible is producing its 1- and 2-person voice shows at Minetta Lane. Audible has requested that their license agreement be extended for another year with a further 1 year option.

Turning to 44 Union Square, our historic Tammany Hall project in New York City. As of today, we estimate that the base building construction work is 80% complete. The concrete superstructure and landmark exterior facade work is done. Our mechanical, electrical and plumbing and elevator work are substantially complete. And the installation of the intricate frame for the iconic glass dome is nearly finished, and placement of the glass in the dome will start in April 2019.

We received questions from stockholders about the construction process, as we have incurred delays as a result of the failure of a subcontractor retained by our construction manager, CNY, to do concrete work at the project. While CNY is titled our construction manager, the position is essentially that of a general contractor. During our Q2 2018 earnings webcast, we advised that CNY had replaced the concrete contractor, Parkside Construction, following allegations from the Manhattan DA's office that ultimately resulted in an indictment of Parkside. This matter was well documented by the local New York City press given the various high-profile New York City projects Parkside has and was working on.

At the time these unforeseen events started to unfold in May 2018, Parkside was in the middle of pouring our concrete superstructure. We believe that it was appropriate for CNY to replace Parkside, and CNY moved quickly to retain Trident General Construction in July 2018.

We are substantially complete with the base building work or in an exclusive negotiations for leases aggregating over 90% of the net leasable square feet. However, we cannot provide assurances that these leases will be finalized. While we are in exclusive negotiations, we continue to show the various other retail spaces of the building. And we anticipate that the building will be ready to turn over portions of leased space to tenants in Q2 2019, so tenants can start making the space their own.

We continue to receive inquiries from a variety of potential exciting tenants, and we're confident that this signature project will be completed with strong and vibrant tenants, who will build the goodwill of the property. Reading is in a strong financial position, and we are focused on getting the best deal on behalf of our stockholders. And we're not going to compromise our returns for just any transaction.

Turning to the Cinema 1, 2 and 3, our cinema property on the Upper East Side of New York City across the street from Bloomingdale's. For the last few years, we tried to complete a deal with our neighbors at the Cinema 1, 2 and 3. We were ultimately unable to arrive at an acceptable ownership allocation. We also concluded that the execution risk with our neighbors on a joint development basis was considerable based on their current business endeavors and their desire for an increasing participation in the management and implementation of any agreed-upon plan.

We've told our board that in 2019, we'll turn our attention to various predevelopment tasks necessary for a go-it-alone strategy. Our focus will be on the subway, which has an entrance in front of our building; excavation and geotechnical issues; the pursuit of air rights; and defining and preserving certain uses in the building.

Today, we continue to believe that the Cinema 1, 2, 3 is an irreplaceable asset in one of the best cities in the U.S. The recently announced Ikea metro store opening next to the Cinema 1, 2 and 3 reinforces that view. We are moving forward with defining a plan for a go-it-alone strategy. In the interim, the Cinema 1, 2 and 3 as a cinema in 2018 delivered the highest total revenues and theater level cash flow in the last 10 years.

Also, as you might have read in our recent filings, our Board of Directors met on March 14, 2019, to consider the indications of interest we received from Patton Vision on November 5, 2018, and January 17, 2019, regarding a purchase of all of the outstanding stock of our company. On March 14, 2019, our Board of Directors, following consideration and adoption of our 3-year business strategy, once again, confirmed its determination that our company and our stockholders would be best served by our continued independence and by our pursuit of our business strategy. Our Board of Directors instructed our management team to inform Patton Vision, once again, that our board had no present interest in engaging in discussions regarding our possible sale.

Now I'll turn the call over to Gilbert for a financial review of the fourth quarter and the full year of 2018.

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

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Thanks, Ellen. As we noted, on a fourth quarter basis, we set records for the highest operating revenue, operating income and EBITDA compared to all other fourth quarters in company history. For the full year, we had the highest operating revenue and operating income ever in company history.

Consolidated revenues for the fourth quarter 2018 increased by $3.1 million to $75 million. This is primarily driven by increases in attendance, box office and food and beverage revenue in U.S., Australia and New Zealand cinemas compared to the fourth quarter of 2017, primarily due to our cinema capital investment and the opening of our new state-of-the-art 8-screen Reading Cinema on December 14, 2017, at Newmarket Village.

These results were achieved notwithstanding a 6.6% decline in Australian dollar and a 3.6% decline in New Zealand dollar for the quarter ended December 31, 2018, compared to the quarter ended December 31, 2017.

Our revenues for the full year 2018 increased by $29.5 million to $309.4 million. The revenue increase was due to: one, increased attendance across all jurisdictions, particularly in the U.S.; two, higher box office and food and beverage revenue, likewise across all jurisdictions; three, a strong film slate from the major studios compared to 2017; four, the full year operations from our cinema and a dining precinct at Newmarket Village; and five, the result of our capital investment in our cinema upgrades, including recliner seating and TITAN screens, which were offset by a onetime, nonrecurring $1.8 million settlement payment booked with respect to the STOMP arbitration recognized in 2017 and a weaker Australia and New Zealand dollar.

Net income attributable to RDI common stockholders decreased by $2.5 million to $5 million for the fourth quarter 2018 and decreased by $16.7 million to $14.4 million for the full year ended December 31, 2018. For the quarter, the decrease was mainly attributable to a decrease in income tax benefit as the value of our deferred tax assets were adjusted downward to reflect new tax rates. This decrease was principally due to a onetime gain on insurance recoveries of $9.2 million and a $9.4 million gain on sale of assets that were recognized during the second quarter of 2017.

Nonsegment general and administrative expenses for the quarter and full year ended December 31, 2018, compared to the same period of the prior year decreased by 24% or $1.4 million and increased 7% or $1.3 million, respectively. The fourth quarter of 2018 decrease compared to the fourth quarter of 2017 primarily relates to the reduction in legal fees of $1.1 million. The reduction is due to lower costs incurred in relation to James Cotter, Jr. litigation. The $1.3 million increase for the full year is primarily related to the increase in payroll-related expenses, which are attributable to the reversal in 2017 for prior year incentive compensation accruals not deemed necessary, offset by a decrease in legal and professional services.

Income tax benefits decreased by $3.7 million for the quarter, and income tax expense increased by $40,000 for the full year ended December 31, 2018, compared to the equivalent prior year period. The difference for the year were primarily due to the benefits recognized as a result of the dissolution of a nonoperational subsidiary, particularly offset by higher taxes on increased pretax income and the provisional unfavorable effect of the Tax Reform Bill enacted in December 2018.

Our adjusted EBITDA for the full year 2018 increased by $7.8 million to $50.7 million, primarily due to the adjustments in 2017 for a gain on sale of $9.4 million and a casualty gain of $9.2 million. Adjusted EBITDA for the fourth quarter of 2018 increased by $2.2 million to $11.17 million due to adjustment to net income for the lower income tax benefit. We believe adjusted EBITDA as defined in our earnings release is an important supplemental measure of our performance.

Shifting to cash flow. Our net cash provided by operations for the 12 months ended December 31, 2018, was $32.6 million, which is an increase of $8.8 million compared to 2017. This was primarily driven by $6.6 million increase in net operating assets and a $1.8 million higher cash inflow from operating activities. Cash flow from operating activities continues to be an important source of capital for the company. Cash used in investing activities during 2018 was $64.9 million, mainly relating to our ongoing real estate development and cinema refurbishment activities. We repaid $54.4 million of borrowings and took an additional borrowings of $90.9 million.

Turning now to our financial position. Our total assets increased by $15.6 million to $439 million. Our financial position remains strong with $180.5 million in stockholders' equity supporting our assets. Additionally, our liquidity position remains strong with $13.1 million of cash on the balance sheet on December 31, 2018. Of our total cash balance amount, $3.5 million and $2 million were held by our Australia and New Zealand subsidiaries, respectively.

We used these amounts that we received from our cinemas and real estate businesses to pay down our long-term borrowing and realized savings from lower interest expenses. We then settle our operating expenses generally with a lag with traditional trade terms. This generates a working capital deficit, which is a positive for the company. We manage our cash investments and capital structures, so we are able to meet short-term and long-term obligations for our businesses while maintaining financial flexibility and liquidity.

As of December 31, 2018, there was approximately $85.9 million of additional capacity under a borrowing arrangement in the U.S., Australia and New Zealand, with $55.6 million of that $85.9 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 more attractive for us to move funds between the jurisdictions where we do business.

As of December 31, 2018, we have a total gross debt outstanding of $167 million, and our debt-to-adjusted EBITDA ratio, excluding debt allocation to facility under construction, which is not generating any EBITDA, continues to be strong at slightly above 2x coverage.

As of Q1 2019, we will be reporting according to ASC 842. The standard will have a material impact in our consolidated balance sheet but will not have a material impact on our consolidated income statement. The most significant impact will be the recognition of right-of-use asset and lease liability for operating leases. While our accounting for capital lease remains substantially unchanged, adoption of the standard will result in the recognition of additional right-of-use asset and lease liability for operating leases of approximately $250 million as of January 1, 2019. We'll try to break this down in further detail when we report Q1 2019 result.

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

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Questions and Answers

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

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Thanks, Gilbert. First, 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 out to us.

So the first question. You have done great work advancing the company's cinema and real estate growth through your capital improvements and strategy. In 2017, RDI repurchased shares around the prices we are at today, and 2018 has seen a slowdown in the buybacks. Can you help us understand what caused the slowdown in the buybacks despite the attractive share price and an operationally stronger company?

I think I can field that one. In 2018, we evaluated a number of transactions or projects that might have increased our capital needs, which caused us to be conservative in the repurchasing of shares. Also, legal restrictions and blackout periods have materially limited our activity in the market. With that said, on March 14, 2019, our Board of Directors extended our company's stock buyback program for 2 further years through March 2, 2021. The board did not increase the authorized amount, which was initially fixed at $25 million. At the present time, $16.2 million of that authorization remains available to repurchase Class A common stock.

The next question. Can you help us understand what drove the weaker U.S. cinema operating margins compared to history? We'll give that one to Ellen to field.

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

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So looking back over the last 3 years, the U.S. cinema division's 2018 operating margin, defined as U.S. cinema operating income as a percentage to U.S. cinema total revenue, increased compared to 2017. However, we did experience a dip in our 2018 operating margin compared to 2016. And this decrease is primarily due to higher depreciation and amortization as a result of the significant capital invested in our U.S. cinema portfolio. Regarding fourth quarter comparisons, U.S. cinema operating margin for Q4 2018 exceeded Q4 2017 results. But again, our Q4 2018 fell short compared to results in Q4 2016. I'll note that in 2016, we had a record year at the box office with a very strong slate of films, whereas 2018's Q4 film slate was not as strong. Also, one of our strongest cinemas closed for renovation during Q4 2018.

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

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Thanks, Ellen. The third question, how much additional debt of the $30.3 million in unused capacity will be drawn down before Union Square is complete? Gilbert?

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Gilbert Avanes, Reading International, Inc. - Interim CFO, Treasurer and VP of Financial Planning & Analysis [4]

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We are anticipating using the remaining Union Square capacity during 2019 to complete the project. The total of that is expected to be $57.5 million, and the balance would be the company's equity contribution.

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

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Thanks, Gilbert. While you're there, perhaps you can address the next question. Can you provide an update on the status or any appeals in the matters related to James J. Cotter matters?

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

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As we have previously reported, Jim Cotter, Jr.'s derivative litigation against all directors was dismissed with prejudice against all directors early in 2018, and the Nevada District Court awarded a cost judgment against Mr. Cotter in favor of the company in the amount of $1.55 million. Additionally, the company's application for attorney fee was denied. All the issues relating to the derivative case are on appeal and are currently being briefed. No date for the oral argument in Nevada has been set. Our most recent public filing contain an update on the employment arbitration involving Mr. Cotter. The arbitrator entered a final decision with respect to the case and the award of the attorney fees. Reading has paid the compensatory award. Regarding Mr. Cotter's ex parte motion in the California Superior Court seeking appointment of a temporary trustee ad litem to solicit offer to purchase the voting stock owned by the Cotter Trust, Ellen and Margaret Cotter appealed the order of the Superior Court issued March of 2018. In response to their appeal, in early 2018, the California Appellate Court issued an order to show cause and a stay in all of the proceedings. Ellen Cotter and Margaret Cotter on one hand and Mr. Cotter, on the other hand, had submitted briefing papers to the California Appellate Court. Earlier this month, the California Appellate Court put the parties on notice that a hearing is scheduled in Los Angeles on April 5, 2019.

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

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Thanks, Gilbert, for that comprehensive update. The next question, how is the new cinema in Newmarket Village faring versus your expectations? What was the return expected? And is it being achieved? When is the competitor theater at the old roller rink that Reading delayed going to open? Ellen, perhaps you can address.

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

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Our Reading Cinema at Newmarket Village didn't open as strongly as we had initially hoped. However, it does take time to fully establish new venues, and we do not believe that year 1 results are indicative of the overall long-term investment. With 20/20 hindsight, we might have made modifications to our original launch plan. And we have since made certain programming changes. The positive news is the theater continues to strengthen month after month. Although we did not publicly disclose the returns on specific projects, we remain comfortable with our investment as the cinema continues to widen its audience. Also, it is generating increasing customer traffic for our new and established tenants at Newmarket Village. Our investment in Reading Cinemas at Newmarket is a situation where we're realizing the benefits of being both the cinema operator and the landlord of the cinema at our shopping center. This is a compelling point of difference for our company and differentiates us from other cinema companies. We do not know the schedule of the opening of the planned 5-star cinema at the corner of Waterworks Road and Enoggera Terrace in Brisbane.

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

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Thanks, Ellen. So to wrap up this call, I'll deal with the last question, which is since your April 2016 purchase, none of the corporate HQ building's leasable space is under contract. Will this be -- building being leveled up with debt? Please explain management's plan.

Well, in early 2019, we terminated the exclusive leasing agreement with Coleus. We are now handling the activation of the space with internal resources. As the Culver City and Playa Vista areas around our office building continue to strengthen, we are currently exploring whether a coworking strategy would meet our required investment criteria. In the interim, based on our conversation with brokers, the growth and importance of Culver City and Playa Vista to the media and technology industries has resulted in favorable appreciation in the building's value over the last few years.

So with that, it marks the conclusion of the call. As usual, we are available for any follow-up calls, so please do not hesitate to reach out to us. Once again, we appreciate you for listening to the call today and thank you for your attention.