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Impact Of COVID-19 Pandemic And Liquidity
6 Months Ended
Jun. 30, 2021
Impact Of COVID-19 Pandemic And Liquidity [Abstract]  
Impact Of COVID-19 Pandemic And Liquidity

Note 3 – Impact of COVID-19 Pandemic and Liquidity

General

On March 11, 2020, the World Health Organization (“WHO”) declared the novel coronavirus, COVID-19, a global pandemic. In March 2020 we temporarily closed all of our live theatres and cinema operations in the U.S., Australia and New Zealand. Operating restrictions adopted in Australia and New Zealand also affected many of our tenants at our retail shopping centers.

While some jurisdictions have relaxed their COVID-19 restrictions, these same jurisdictions are, to varying degrees, reinstating their lockdowns due to the resurgence of COVID-19, including the emergence of new variants. Accordingly, the situation has been, and continues to be, uncertain and spikes in cases of COVID-19 continue to cause uncertainty in the market. Even where businesses have been allowed to reopen, operational limitations on density, hours of operation, and other operating factors, and varying degrees of public concern about interacting with third parties, are impacting the return to normal operations. Vaccination programs are now rolling out in the jurisdictions in which we operate, but periodic closures and limitations on operating activities are expected to continue until the COVID-19 spread is considered materially contained. No assurances can be given as to when material containment within each of the jurisdictions that affect our business will be achieved.

Cinema Segment Ongoing Impact

As of June 30, 2021, we had reopened 20 of our 24 cinemas in the U.S. Our Consolidated Theatre at the Kahala Mall in Honolulu, which was closed for a complete renovation prior to the start of the pandemic closures, remains closed as those renovations have been delayed due to COVID-19. We will open the remaining three cinemas when management determines it is operationally expedient to do so.

In New Zealand our circuit is open except for our Reading Cinemas at Courtenay Central (which continues to be closed due to seismic concerns which predated the pandemic). A return to operation of this center has been delayed by our efforts to respond to COVID-19.

During the first six months of 2021, we fully opened our Australian circuit, subject to occasional, short lockdowns. However, as of the date of this Report, 12 cinemas are closed as Australia experiences a resurgence of the COVID-19 virus.

The global performance of certain movies released in the first half of 2021 is encouraging. While not at 2019 pre-COVID levels, we see strong evidence that the general public wants to enjoy movies in a movie theatre environment. Despite this, COVID-19 continues to adversely impact our business by reducing our patronage numbers (due to limited seating capacities and public reticence to attend shared spaces) which in turn may cause film distributors to reschedule movie releases and increasing our costs of operation through enhanced cleaning protocols. The effect of rescheduling of movies can be to push the related revenues into later periods, as well as reduce the available patronage where a movie is also released to streaming on the same day. We have confidence in the movies anticipated for release in the remainder of 2021 and in 2022, but there can be no assurances regarding their performance or scheduling or which portion of revenues from such releases come to cinemas.

Real Estate Segment Ongoing Impact

Substantially all our tenants in our Australian and New Zealand real estate businesses (excluding Courtenay Central) are currently open for trading. In the U.S., much of our real estate income has traditionally been generated by rental revenue from our live theatres. As of the date of this report, our Orpheum theatre is open, but our Minetta theatre remains closed to the public due to COVID-19. Our Minetta Lane Theatre continues to generate income, however, as it is licensed on an exclusive basis to Audible, an Amazon company.

Liquidity Impact

The continued disruption of our global cinemas caused by COVID-19 led to a significant decrease in our Company’s revenues and earnings for the three and six month periods ended June 30, 2021, as compared to pre-COVID-19 operations. Such effects will likely continue, to varying degrees, until the virus is materially contained. As compared to the six months ended June 30, 2020, our revenues and earnings have increased as we have been able to reopen many of our theatres. Even though we are encouraged by the return of patrons to our theatres and the movie releases expected in the coming months, we cannot provide any assurances as to the nature or pace of a return to prior operating levels. With regards to our real estate operations, while all our New Zealand and Australian real estate tenants are currently trading (other than certain tenants who have closed for reasons unrelated to COVID-19), our real estate revenue and earnings may continue to be affected by any rent relief that we may deem necessary to provide to certain tenants experiencing continuing impacts from COVID-19.

Going Concern

Management continues to evaluate the going concern assertion required by ASC 205-40 Going Concern as it relates to our Company. Management’s evaluation is informed by current liquidity positions, cash flow estimates, known capital and other expenditure requirements and commitments and management’s current business plan and strategies. Our Company’s business plan - two businesses (real estate and cinema) in three countries (Australia, New Zealand and the U.S.) - has served us well since the onset of COVID-19 and is key to management’s overall evaluation of ASC 205-40 Going Concern.

The cumulative impact of COVID-19 on our cinema business led to the conclusion in the third quarter of 2020 that there was substantial doubt regarding our Company’s ability to continue as a going concern. Management’s plans to alleviate such substantial doubt included the intention to refinance our 44 Union Square property and the monetization of certain real estate assets.

As of June 2021, management has successfully executed these plans. As detailed at Note 11 – Borrowings, we have refinanced our 44 Union Square property resulting in a $43.0 million cash inflow before fees. As detailed at Note 6 – Real Estate Transactions, we monetized our non-income generating land in Manukau, New Zealand and Coachella, California, and monetized our ETC in Auburn, Australia and monetized our Royal George Theatre in Chicago. These sales produced net cash inflows of $136.1 million (net of transfers to our 50% partner with respect to the sale of the Coachella property). The execution of these plans generated cash inflows of $179.1 million. In addition, in the second quarter of 2021, we repaid $11.2 million (NZ$16.0 million) of our $22.4 million (NZ$32.0 million) Westpac facility, and we repaid $15.8 million (AU$20.5 million) of our $76.8 million NAB facility.

The Company’s financial position following the successful execution of these plans, and our forecasts and cash flow estimates based on our current expectations of industry performance and recovery, mean that our Company has sufficient resources to meet its obligations as they become due within one year after the issuance of this report on Form 10-Q. Management’s forecasts and cash flow estimates are based on the current expectation that the global cinema industry will continue to recover in 2021 and into 2022. Forecasts are by their nature inherently uncertain, but the effects of COVID-19 continue to cause greater forecasting difficulties than would otherwise exist in more stable economic times. While we are seeing substantial evidence of recovery, and at various times during the first six months of 2021, 57 of our 62 cinemas worldwide have been open for business, our forecasts rely upon the ability and desire of moviegoers to return to the movie theatres. Many factors influencing this are outside of management’s control, but are, nevertheless, material, individually and in the aggregate, to the realization of management’s forecasts and expectations throughout the period of COVID-19.

Impairment Considerations

Our Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment. At December 31, 2020, our Company performed a quantitative recoverability test of the carrying values of all its asset groups. Our Company estimated the undiscounted future cash flows expected to result from the use of these asset groups and recorded an impairment charge of $217,000. As noted above, the financial performance of our cinemas has been improving at a rate better than that which was expected during the December 31, 2020, impairment analysis process. This improved performance at an asset group level, and the impacts of this performance on our impairment modelling, resulted in no impairment charges being recognized for the quarter and six months to June 30, 2021. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and as a result, actual results may materially differ from management’s estimates.

Our Company also considers that the events and factors described above constitute impairment indicators under ASC 350 Intangibles – Goodwill and Other. Our Company performed a quantitative goodwill impairment test and determined that its goodwill was not impaired as of December 31, 2020. The test was performed at a reporting unit level by comparing each reporting unit’s carrying value, including goodwill, to its fair value. The fair value of each reporting unit was assessed using a discounted cash flow model based on the budgetary revisions performed by management in response to COVID-19 and the developing market conditions. Given the improvements in trading conditions in the first and second quarters of 2021, no impairment of goodwill has been recognized for the quarter and six months ended June 30, 2021. Actual performance against our forecasts is dependent on several variables and conditions, many of which are subject to the uncertainties associated with COVID-19 and as a result, actual results may materially differ from management’s estimates.