Asset management





The direct connection between the Hollywood studios and the daily running of a cinema might not be immediately obvious unless you are familiar with the cinema exhibition business. There are two main answers to this question:

1) A functioning cinema needs a pipeline of new content constantly coming through - whether from Hollywood or local production - to attract enough customers to visit and spend money with them. Without this content customers will not attend in the numbers needed for a cinema to function and / or to thrive.

2) Building a cinema is a long-term investment. Looking to the future and a post-COVID-19 world, Hollywood studios need to demonstrate commitment to the theatrical business so that this can be written into cinema property deals, to reassure and encourage investment.

This is difficult to quantify in a concrete sense, but ultimately this will have to be judged on an individual case-by-case basis. Operators may be overly optimistic in their market recovery forecasting, whereas our outlook may be somewhat more realistic. This should, however, be mutually agreed between the two parties and, moving forward, operators should - ideally - have the ability to reinvest into cinemas, rather than just fulfilling rent obligations.

Cinemas are currently facing a liquidity and cash flow crisis. In many instances reopening will cost more than staying closed and so, despite the official status from authorities, a decision to reopen will be taken based on economic feasibility.

Sector recovery will happen, of this we are confident. The Asia-Pacific cinema market has already been demonstrating exactly this in recent months with China, Japan, and South Korea now top performing global countries. The Kingdom of Saudi Arabia (KSA) is another example, albeit a unique one, that will see growth beyond recovery, going as it has been from strength to strength this year.

Like in many other industries, some cinemas will not survive - that is an unfortunate fact. But those who will get through this period, especially in highly competitive territories with a high number of screens, are those that demonstrate adaptability, creativity, and a willingness to work collaboratively. Even finding ways to work with perceived “enemies” like streaming platforms will strengthen a cinema’s position.

The requirements for a CVA will be assessed on a case-by-case basis but it is highly likely that many cinemas will have to explore this option to survive. A CVA does require a restructuring of the business (which may sound drastic) but this is with the view to easing current cashflow problems and relieving immediate financial pressures. And, of course, with the long-term aim of avoiding liquidation.

Rent negotiations between landlords and tenants - and if a CVA may be needed - is dependent on the status of the relationship:

Firstly, if it is a positive relationship where negotiations are welcome then an agreement should be reached where possible. If there is a deal to be done - and we cannot stress this enough - then this should be an absolute priority.

But if the relationship is not positive for any reason and negotiations are not producing results, then a second option is to approach a new operator to take on the cinema.

Or, thirdly, a helpful tool to consider is a management option. Even for sites that aren’t distressed, this may be worth exploring and is a service TBP provide and can advise on. It may not necessarily be exercised but it is a good option to be aware of and have in your arsenal.

Realistically, 2021 is likely to be poorer in terms of operating revenue after the cataclysmic impact of Covid-19 in 2020, with a lot of support mechanics from governments either finishing or being withdrawn. Tenant-landlord discussions about how to move forward with options for rent agreements will have to be arranged, but each individual situation will have a different mechanism to resolve this: some rents may be clawed back over the length of the lease, time may be added to the end of it or some form of write-off may be arranged.

We believe it is better to be informed of what may be around the corner. Get in touch to see how we can help.

We can assist with providing impartial advice to landlords and asset managers that currently feel unsure of how to move forward with a cinema asset. TBP’s consultancy services benefit from our team’s many years’ experience in all areas of the exhibition industry and our guidance is designed to create a level playing field. Get in touch to see how we can help.

Available data in the industry from specialists like ComScore and Movio, needs to be shared and, where possible, integrated with town centres and shopping malls to support cinema development. More active management on an on-going basis will result in fewer surprises and a healthier business.

All three largest UK operators carry significant levels of debt and, for the same reasons as all other operators, have cash flow problems. Predictions as to how the next few months will play out should be taken with a pinch of salt but there may well be similarly-sized operators external to the UK who may want to take a stake in the market if they feel they’re in a position to do so.

Some smaller operators whose balance sheets have fared better over the last few months may have, until now, been overlooked. But if they can initiate an open dialogue with their landlords about rent agreements and how to move forward, they may be in a stronger position in a post-Covid world.

TBP’s team is made up of experienced professionals, each with a different discipline and substantial industry experience. When we are called on to take over the management of a site, it’s our responsibility to find the right solution for that particular project. Having managed sites on numerous occasions we have an extensive network of contacts - from vendors to seating to operations staff - that can be brought in to fulfil a site’s requirements. It is likely that operating systems will need updating, film programming will need to be strategically addressed, services will need upgrading; these - and more - are all within TBP’s remit.

But our main function is to provide guidance from a board position to the appointed operations team on how to improve the function and running of the company. As the leading consultancy in cinema exhibition from both a property and exhibition standpoint we consider ourselves to be a resource centre for industry-wide best practices.

There are many practical elements that need to be taken care of to reopen a cinema. TBP has a wide network of contacts through which to source different solutions and can make recommendations for the most suitable manufacturers and services for the project. Some considerations include (but are not limited to) implementing a new brand and commercial strategy, Point of Sale (POS) / ticketing system, recruiting the necessary management and operating staff.

But more than that, it is important for the landlord to be clear about the vision they have for the aims of the business. TBP will then tailor these objectives with an agreed strategic direction for the company.

1) A distressed site: for this scenario, a strategy review will be the first piece of work completed to assess the business. This will lead to decisions about the rebranding, new commercial strategy and market repositioning of the company. TBP has the advantage of having new branding that can be rolled out efficiently.

2) A distressed landlord: the cinema(s) in question may not be distressed but the landlord may feel concerned and unsure about how to move forward in the current climate. In its simplest form there are usually three options: to negotiate with the existing operator, to find a new operator or for TBP to bring in a management team until the market stabilises.

In a word, yes. Having handled multiple previous site handovers, TBP has the relevant experience, processes and procedures in place needed to ensure discretion and efficiency. Get in touch to see how we can help you.

The purpose and ideal outcome of taking over the management of a cinema entity would be to bring it up to speed so that it can be absorbed into a company. To ensure alignment with the property owner’s interests it’s crucial to determine which company the cinema in question would best fit into to ensure future success. But usually, the aim would be to incorporate the site into a well-managed circuit, with an effective film programme, a well-designed marketing strategy and a loyalty scheme.

In the same way that hoteliers - Marriott, Hilton, Holiday Inn etc - run short or long term contracts for the landlords of their property, TBP offers a similar service for cinema exhibition landlords and can manage the operations for a cinema whose incumbent operator has vacated the property.

If you’re a landlord who is feeling unsure as to what your next steps should be in this current climate, get in touch to see how we can help you.

The purpose of a CVA is to ensure a business - cinema or otherwise - can survive by cutting down the company’s debt, reorganising the business and ensuring a new, affordable rent arrangement with the landlord is implemented. A CVA would usually be explored if the company is having serious financial problems with the aim of preventing the liquidation of the company.

A CVA may be necessary if the current landlord-operator relationship is not on a positive footing and negotiations are not possible. But if a resolution can be reached with the current tenants then this should *always* be the first port of call.

If not, a CVA may well be deemed relevant if the finances and cashflow issues of the business meet certain requirements. This will then be put to a vote of the company’s creditors with 75% of votes needed to carry the motion.

But even if a company qualifies for a CVA this may not necessarily end up being the course of action taken. The option of a CVA can force all parties involved - tenants, landlords, bankers - to maintain their relationship and come up with a solution to the situation.

One factor that can determine the possible outcome of how best to tackle rent arrears is how long is left on the current lease. If, hypothetically, there is a year remaining then common sense would indicate that an extra year should be added on to the end of the lease. But will not happen every time and tends to be dependent on individual circumstances. Instead, there might be an agreed period to pay rent back post-COVID-19, a rent-free period, or a restructuring of the lease. From an operations perspective, the best possible outcome is a deferral of rent.

The best overall approach to this question is that, as far as possible, there should be as much cooperation and open dialogue as possible between landlord and incumbent.

This is a really challenging situation to be in, partly because there is a significant capital cost to recovering or replacing critical equipment. In these circumstances TBP would pull together a business plan to work out costs and Return on Investment (RoI) over a certain time period for the landlord to understand exactly what they’re facing. It is important to figure out the answers to questions such as who’s paying, when are they paying and how much will be added to the rent to recover that cost. TBP can assist with these conversations but, ultimately, an open dialogue between landlord and operator will be critical to the resolution of these issues.

This is difficult to answer in concrete terms but there are several other questions that need to be answered to give a sense of what a recovery and site reopening will look like, financially. TBP can assist in working through and compiling the necessary responses. The following should be considered:

- How stable is the market? Is 2020 a blip or a trend?

- What is the impact of 2020’s closures for landlords?

- Will Hollywood support the theatrical exhibition market, or will all content be released to streaming platforms?

- What films are available to build a business plan around?

- What does a market recovery look like and how long will it take?

- How does a recovery look in a P&L (profit & loss) spreadsheet?

- How much working capital does a cinema need (whether managed or part of a circuit)?

- How much capital is required to reopen and stabilise an individual business?

TBP has a wealth of experience in working alongside Public Relations (PR) firms to craft the right messaging in a cinema crisis management situation. But we can also recommend a PR firm if one is needed, from our network of contacts.

If you’re a shopping centre landlord or manager and have a cinema that has been left empty, this may be impacting on surrounding units. A clear communication strategy is crucial so we will work with you to create the right narrative so that customers are informed of what is happening, when, how and what can be expected.

Get in touch to see how we can help

Get in touch to see

how we can help