Figures within the UK cinema sector have expressed dismay at how UK landlords are being treated by Cineworld as the troubled, debt-laden exhibition giant attempts to restructure.
It emerged this week that one landlord is fighting back. Cineworld’s 4DX extreme cinema screen at its flagship Leicester Square venue has reportedly been boarded up by the landlord. When Screen visited on Monday afternoon, the screen was cordoned off and closed and tickets were not available to be bought. Venue staff referred questions about its closure to Cineworld’s PR company.
The 4DX screen has a different landlord than the rest of the Leicester Square site. Other screens there were open as normal.
Screen has approached Cineworld for comment and clarification.
Exhibition expert John Sullivan, founding director of cinema consultancy The Big Picture (Cinema Advisers), who is tracking Cineworld’s very complex landlord relationships, has said the 4DX screen in Leicester Square is unlikely to re-open.
“My understanding is that the owner of that site has had enough and is locking Cineworld out,” Sullivan said. “It has closed down because there has been a breakdown in the landlord-tenant relationship and I would suspect that that is permanent.”
Last summer, in another example of landlords taking on their tenants, the Court of Appeal backed the owners of the London Trocadero (where Picturehouse Central is based) in their claim for rent arrears against Cineworld.
Shareholders wiped out
Cineworld filed for Chapter 11 in US bankruptcy court in Texas in September 2022 after cinemagoing was hit during and after the pandemic. It announced a reorgnisation plan last month which will see lenders effectively take control of the company in a debt for equity deal.
“The proposed restructuring does not provide for any recovery for holders of Cineworld’s existing equity interests,” the company stated last month, confirming existing shareholders will be wiped out.
The shareholders therefore have very little redress against the cinema giant.
“While Cineworld’s shareholders will rightly be concerned about their equity interests, their options are unfortunately limited,” solicitor Olexandr Kyrychenko, partner at IMD Corporate told Screen.
Landlords’ dilemma
Now, it remains to be seen what action Cineworld’s UK landlords will take to protect their interests.
According to one property expert, many of Cineworld’s UK landlords are being forced to renegotiate leases on far less favourable terms than they were previously held. The expert said that the landlords were being “shafted” by Cineworld.
“Cineworld are in discussions with 100 odd landlords around the UK at the moment about ripping up the old lease terms and entering into something which is a more turnover type lease,” the expert explained. Under a turnover rent lease, a tenant pays a percentage of their turnover rather than a fixed monthly or annual sum to their landlord.
“The last thing anyone wants is an empty building,” added the property expert. ”Your choice is twofold. Do you accept what is on the table and negotiate the best you can? Or do you think another operator will step in tomorrow? The risk with the latter is that you have an empty building. Once it becomes empty it is very difficult to retrieve the position because you lose customers overnight and they just go somewhere else, and all that goodwill is gone.”
Sullivan warned that if the landlords get too badly “bruised” by their experiences with Cineworld, this could lead to a plummeting of confidence in the cinema sector as a whole. He predicted these landlords will be “very nervous about forwarding any further funds to tenants for refurbishment.”
“[Cineworld] has got the landlords over a barrel right now because the landlords have properties that are not readily adaptable to other use,” said Sullivan.
He pointed out landlords have underwritten the refurbishment of most UK cinema sites. “[The landlords) have been investing a lot…it goes a bit unheralded that a lot of the upgrades of cinemas across the UK have been instigated with landlord-tenant participation…I don’t think in this particular circumstance, the landlords are being treated very well.”
Sullivan said that if landlords try to take back sites, the tenants can threaten to strip out the screens, projectors and seats, leaving behind a “carcass that will cost millions to restore.”
Picturehouse speculation
There has been intense speculation about what might happen to the network of Picturehouse cinemas across the UK owned by Cineworld. Rival arthouse operator Curzon has expressed an interest in acquiring the chain, whose flagship venue is the Picturehouse Central in Piccadilly Circus. Meanwhile, Picturehouse founder Lynn Goleby was reported last March to be in talks to buy back the chain.
However, one insider predicts the Picturehouse network will be broken up. “The break-up could be Curzon buy the arty ones and the more mainstream ones rebrand with the Cineworld name or go under another banner.”
The future of Mooky Greidinger
Cineworld boss Mooky Greidinger appeared on stage at trade event CinemaCon a few weeks ago, paying tribute to employees at Regal, the US chain that Cineworld acquired in 2017. Nonetheless, analysts are predicting that Greidinger’s time at the helm of the company could soon be over.
“It doesn’t look like the lenders wish for Mooky to be a part of the new Cineworld that is being restructured. They went out of their way to say no equity holder, specifically the executive directors, of which Mooky is one of them, will benefit in any way, shape or form from the new company,” one insider told Screen.
Sullivan warned, though, that it’s too early to write off the embattled but resilient Cineworld boss quite yet. “I would never underestimate Mooky Greidinger,” Sullivan said.
Reports have suggested that Cineworld lenders are planning a management shake-up following bankruptcy proceedings.
The suggestion is that Cineworld is heading either toward a CVA [company voluntary arrangement] insolvency type situation in the UK or a negotiated agreement with the landlords.
CVA is a process specific to the UK which allows insolvent companies to pay creditors over a fixed period and to continue trading. 75% of creditors have to agree with the process for the CVA to be approved.
In early May, a US court approved plans for Cineworld to raise $2.26 billion as part of its exit from bankruptcy. Reuters reported that Cineworld is aiming to emerge from its Chapter 11 bankruptcy in the US in “the first half of 2023” and that “the company will seek final court approval of its bankruptcy restructuring on June 12.
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