Regal Reaches Deal With REIT To Surrender 16 Theaters As Part Of Chapter 11 Exit Plan
As Regal Cinemas' parent company gets set to emerge from bankruptcy, it has reached a deal with one of its biggest landlords to surrender 16 movie theaters across the U.S. and come to a new agreement on dozens of cinemas that will stay open.
Kansas City, Missouri-based EPR Properties announced Thursday that it has come to terms with Regal on a new master lease agreement covering 41 movie theaters in its portfolio operated by the cinema giant. Under the agreement, Regal has agreed to pay an annual fixed rent of $65M that escalates by 10% every five years and will forgive Regal more than $50M in deferred rents that it incurred as of this month, assuming Regal doesn’t default on the new lease terms for 15 years, according to a press release.
The agreement also requires Regal to pay a percentage rent on leases for any theater exceeding $220M in gross sales, a threshold that 41 of Regal’s theaters met in 2022, according to the release.
“The innovative percentage rent component allows us to more fully participate in the recovery of theatrical exhibition, with significant upside potential,” EPR Properties CEO Greg Silvers said in a statement. "The resolution of the Regal bankruptcy will provide us with a much stronger tenant that has a recapitalized and improved balance sheet with significantly lower leverage. We are pleased with the resolution of the restructuring and believe it has enhanced our overall company profile."
Regal’s parent company, Cineworld Group PLC, filed for Chapter 11 bankruptcy protection in September after being unable to dig out of its pandemic-fueled box office slump prevented it from being able to manage its $5B in debt. The new master lease agreement was part of the deal to exit Chapter 11, which slashed more than $3.5B of debt from its books and wiped out the owners of Cineworld's shares, which were traded on the London stock exchange. The deal was approved by a Delaware bankruptcy judge on Wednesday, Deadline reported.
With more than 360 properties worth $6.7B, EPR reported in the first quarter that its portfolio was 98% leased. During the first-quarter earnings call, Silvers highlighted Hollywood’s box office improvements this year and the expectation that more original content would come to theaters, especially from Amazon and Apple. Since then, though, the Writers Guild of America has gone on strike, shutting down content productions across the U.S.
“At an industry level, we are encouraged by the continued substantial growth in box office revenues as content production ramps up. As we stated many times, this firmly speaks to the importance of theatrical distribution and maximizing economics and building brands,” Silvers said on the April 28 call.
Of the 16 movie theaters surrendered in the deal, the REIT has struck a deal to lease four to Texas-based Cinemark and one to Phoenix Theatres. EPR plans to sell the remaining 11 theaters, recording a $50M non-cash impairment charge in the second quarter. It plans to redeploy any sale proceeds into non-theater experiential properties, according to the press release.
EPR also said it was prepared to reimburse Regal up to $32.5M for any “revenue-enhancing improvements” the movie chain makes to its remaining theaters.
