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Impact Of COVID-19 Pandemic And Liquidity | 3 Months Ended
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Mar. 31, 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. Following the date of this declaration, many jurisdictions imposed various restrictions on “non-essential” activities. In the jurisdictions in which we operate, these restrictions typically included closure of all business deemed “non-essential” (including movie-theaters and most other indoor forms of entertainment), and that all “non-essential” workers, and all members of the public, remain in their homes. As a result, 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. In the second to fourth quarters of 2020, and continuing into 2021, some jurisdictions have relaxed their COVID-19 restrictions. However, some of these same jurisdictions are, to varying degrees reinstating their lockdowns due to the resurgence of COVID-19. Accordingly, the situation has been, and continues to be, uncertain. 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 March 31, 2021, we had reopened 19 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 four cinemas when Management determines it is operationally expedient to do so. In the second quarter of 2020, we reopened all the cinemas in our New Zealand circuit except for our Reading Cinemas at Courtenay Central (which continues to be closed due to seismic concerns which predated the pandemic), with social distancing measures in place. Government imposed social distancing requirements were discontinued in New Zealand on June 8, 2020. In June and July 2020, we reopened all our Australia circuit with social distancing measures in place. While most Australian states have removed social distancing measures, some states are maintaining capacity restrictions. Certain locations in Australia and New Zealand have been, and may in the future be, subject to short local lockdowns in instances where community transition of the virus has spread, but these have been isolated to individual areas. The need to address COVID-19 by reducing our operating costs and capital expenditures additionally delays the timing of the return to full operation of our Courtenay Central cinema anchored shopping center. We are encouraged by the global performance of certain movies released in March and April 2021, which produced attendances and revenues that, while less than 2019 pre-COVID-19 levels, in our view show signs that the general public wants to enjoy movies in a movie theater environment. Despite this, COVID-19 continues to adversely impact our business by reducing our seating capacities, increasing our costs of operation due to the need for the implementation of enhanced cleaning protocols, deterring some potential customers from sharing entertainment spaces with third parties, and deterring film distributors from releasing their films to exhibitors. While we have confidence in the movies anticipated for release in 2021 and 2022, there can be no assurances that the timing of these releases will not be materially rescheduled by movie studios. Such rescheduling may push the related revenues into later quarters, and in circumstances where a movie is released to streaming on the same day as the theaters, also have the effect of reducing our potential patronage. Real Estate Segment Ongoing Impact Substantially all our tenants in our Australian real estate business are currently open for trading. All our tenants in our New Zealand real estate business are currently open for trading. However, most of the rentable retail portions of our Courtenay Central location continue to be closed since January 2019 due to seismic concerns. In the U.S., much of our real estate income is generated by rental revenue from our live theatres which, as of the date of this Report, are closed to the public due to COVID-19. Liquidity Impact The closure of our global cinemas led to a significant decrease in our Company’s revenues and earnings for the year ended December 31, 2020. Even though all but six of our global cinemas are open as of March 31, 2021, the effects of COVID-19 continue to cause reduced and/or delayed revenues and earnings due to (i) the major studios postponing or removing their “tentpole” movies from the release schedule, (ii) reduced attendance due to social distancing requirements, potential audience hesitance to engage socially with third parties and/or a lack of compelling movies scheduled at reopened theaters, and (iii) increased operating costs due to COVID-19 safety protocols. There remains a continuing risk that new closures may occur due to future local outbreaks of COVID-19. Due to these factors, even though we are encouraged by the return of patrons to our theaters 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. Cost reduction activities As of March 31, 2021, our Company had reduced our negative working capital to $13.0 million from a negative working capital of $64.1 million at December 31, 2020. Our Company continues to follow the proactive steps first enacted during 2020 to conserve cash, while continuing to negotiate with our third-party landlords and other vendors for further abatements and/or deferrals of occupancy costs and other expenses. Cash generation activities and debt management During the first quarter of 2021, and extending into the second quarter, we have taken significant steps to generate additional cash. As detailed at Note 6 – Real Estate Transactions, we monetized our non-income generating land at Manukau, New Zealand and Coachella, California, in the first quarter of 2021. These sales produced net cash inflows of $60.0 million, net of transfers to our 50% partner with respect to the sale of Coachella. As detailed at Note 11 – Borrowings, on March 26, 2021 we used a portion of the proceeds from the monetization of our Manukau property to retire the $40.6 million construction loan secured by our 44 Union Square property, and on May 7, 2021 refinanced this property resulting in a $43.0 million cash inflow before fees. At the present time, we have no secured debt maturing prior to the end of the first quarter of 2022. Also o n May 7, 2021, we repaid $11.2 million (NZ$16.0 million) of our $22.4 million (NZ$32.0 million) Westpac debt, which permanently reduced this facility by the same amount. We are currently in exclusive negotiations with a qualified buyer to sell our Auburn / Redyard property. On May 14, 2021, we entered into a definitive purchase and sale agreement with respect to our Royal George Theatre property. While no assurances can be given, we anticipate that both transactions will close during the second quarter of 2021. Going Concern Management continues to evaluate the assertion required by ASC 205-40 Going Concern as it relates to our Company, including its operations in its various individual operating jurisdictions: U.S., Australia and New Zealand. 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 above discussed factors, including principally, but not limited to, the temporary closure of our cinemas, materially reduced cinema attendances and as a result materially reduced cinema revenues and cash flows mean that, absent Management plans, the Company’s liquidity is insufficient to meet its obligations as they fall due, without the monetization of additional real estate assets in accordance with Management’s plan for the second and third quarters of this year. As a result, there is substantial doubt that the Company will be able to continue as a going concern for at least twelve months following the issuance of our financial statements; however, it is probable that Management’s plans described herein will alleviate that substantial doubt. Management’s forecasts and cash flow estimates are based on the current expectation that the global cinema industry will continue to recover in 2021. We are seeing substantial evidence of recovery, and at the current time 56 of our 61 cinemas worldwide are open for business. However, this forecast relies upon, among other things, the resumption of release of “tentpole” movies, and confidence of moviegoers in the safety protocols established in the jurisdictions in which we operate. Neither of these factors is within 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. Management recognizes that in times of domestic or global economic turmoil, including COVID-19, our estimates and judgments with respect to these cash flow estimates are subject to greater uncertainty than in more stable periods. The forecasts are inherently uncertain and have required us to make estimates and judgements regarding the extent to which COVID-19 will continue to affect the cinema industry. In order to alleviate any substantial doubt that our Company will be able to generate sufficient cash flows within the twelve month period after the issuance of these financial statements to meet its obligations as they become due, we continue to work to monetize certain assets within our real estate portfolio. We are currently in exclusive negotiations with a qualified buyer to sell our Auburn / Redyard property in the second quarter of 2021. On May 14, 2021, we entered into a definitive purchase and sale agreement with a qualified buyer for our Royal George Theatre property likewise looking to close in the second quarter of 2021. Real Estate development and monetization is a core component of our Company’s real estate business. We note the significant progress made regarding this objective since the properties went to market and, although no assurances can be given, based on current facts and circumstances and the interest received in these properties to date, Management is confident that these real estate sales will be completed during the second quarter of 2021, on satisfactory terms. The sale of these assets in conjunction with the re-leveraging of our 44 Union Square asset, as discussed above, is expected to generate the cash flow required to alleviate the substantial doubt around going concern. In conclusion, as of the date of issuance of these financial statements, based on Management’s evaluation of ASC 205-40 Going Concern and the current conditions and events, considered in the aggregate, and Management’s various plans for enhancing its liquidity and the extent to which those plans are progressing, Management concludes that the plans are probable of being implemented and probable that they alleviate the substantial doubt about the Company’s ability to continue as a going concern. Impairment Considerations Our Company considers that the events and factors described above constitute impairment indicators under ASC 360 Property, Plant and Equipment. As 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 which was expected during the December 31, 2020 impairment process. This improved performance at asset group level, and the impacts of this performance on our impairment modelling, mean that no impairment charges were recognized for the three months to March 31, 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 Q1 2021, no impairment of goodwill has been recognized for the three months ended March 31, 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.

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